NJ Supreme Court Defines Scope of Good Faith Defense to State Wage and Hour Laws for the First Time

The New Jersey Supreme Court ruled in January to sharply limit the scope of the good faith exception to the state wage and hour law, which allows an employer to rely on the position of the New Jersey Department of Labor and Workforce Development as an absolute defense in a private lawsuit. In Elmer Branch v. Cream-O-Land Dairy,1 the Court held that under the plain language of the of act, the provision of New Jersey’s wage and hour law that allows an employer to rely in its defense on “any written administrative regulation, order, ruling, approval or interpretation by the Commissioner…or the Director” of the NJDOL only applies where the commissioner directly issues such regulation, order, approval or interpretation. The employer in Branch had sought to claim early-stage dispute resolution actions of lower-level NJDOL employees in its defense, which were rejected. In recognition of the difficulty of an employer obtaining a determination from the commissioner in the ordinary course, however, the Supreme Court’s opinion also suggested that the NJDOL should consider developing an administrative procedure for issuing opinion letters that will enable an employer to satisfy the good faith defense.

The decision provides needed guidance to a previously unsettled area of state law. Prior to the recent ruling, New Jersey case law under the “good faith exception to its wage and hour law were ‘virtually non-existent.’”2As a result, in the Appellate Division, both parties in Branch invoked federal precedent under the federal wage and hour law and its analogously worded defense in their favor.3 Prior to Branch, no published New Jersey Appellate Division decisions existed on the subject, and one published Law Division case existed but appeared poorly reasoned, in that it had permitted the employer defendant to rely on the exemption even though no “administrative regulation, order, ruling, approval or interpretation” of the NJDOL had been invoked as required under the law.4

The New Jersey Wage and Hour Law, N.J.S.A. 34:11- 56a, et seq., provides that covered workers must be paid certain hourly wages and overtime, normally at one and a half times the regular hourly rate of pay, under penalty of double damages and attorneys’ fees in a successful action challenging a violation.5 As an absolute defense to any action under the act, it provides that

[i]n any action or proceeding commenced prior to or on or after the date of the enactment of this act based on any act or omission prior to or on or after the date of the enactment of this act, no employer shall be subject to any liability or punishment on account of the failure of the employer to pay minimum wages or overtime compensation under the act, if he pleads and proves that the act or omission complained of was in good faith in conformity with and in reliance on any written administrative regulation, order, ruling, approval or interpretation by the Commissioner of the Department of Labor and Industry or the Director of the Wage and Hour Bureau, or any administrative action or enforcement policy of such department or bureau with respect to the class of employers to which he belonged. Such a defense ,if established, shall be a complete bar to the action or proceeding, notwithstanding, that after such act or omission, such administrative regulation, order, ruling, approval, interpretation, practice, or enforcement policy is modified or rescinded or is deter- mined by judicial authority to be invalid or of no legal effect.6

The “good faith” exception contains two components. First, the employer can rely on (1)“any written administrative regulation, order, ruling, approval or interpretation by the Commissioner of the Department of Labor and Industry or Director of the Wage and Hour Bureau;” or (2) “any administrative enforcement action or enforcement policy of such department or bureau with respect to the class of employers to which he belonged.” Second, the employer must demonstrate that the employer actually relied in good faith on the ruling or enforcement policy in question.7

In Branch, the defendant employed truck drivers to deliver its product throughout New Jersey. The plaintiff, on behalf of himself and a putative class of truck drivers who worked on average between 60-80 hours per week, alleged that the defendant violated the wage and hour law by failing to pay overtime.8 The defendant argued that it was a “trucking industry employer” as defined by the wage and hour law, and thus, only required to pay time and a half of minimum wage as opposed to time and a half of regular hourly rate of pay.9 Further, the defendant argued that it was entitled to assert the absolute “good faith” defense pursuant to three prior actions of the NJDOL with respect to its policy.10 The first action was in response to a 2007 complaint, in which the NJDOL responded to a worker complaint and deter- mined that the defendant was covered under the trucking industry exception and not in violation, and closed the case.11 The second incident occurred in 2014, where in response to a worker complaint, a department official wrote an email to the defendant’s counsel advising that it was covered by the trucking industry exemption, and therefore not in violation.12 Finally, in the third action which occurred in 2017, the department investigated a driver’s complaint and again advised the defendant by email that the trucking industry exemption applied.13

In considering the defense, the trial court held that the prior investigations and decisions satisfied the “good faith”defense.14 On appeal, the defendant relied in addition on a 2006 opinion letter which generally described the nature of the trucking industry exemption, but did not otherwise specifically pertain to the employer.15 In both the Appellate Division and thereafter, the state Attorney General submitted amicus papers stating that it did not interpret the three investigations as satisfying the “good faith” defense under the act.16 The Appellate Division reversed, holding that the investigations did not satisfy the defense, because it could only satisfy the first prong with a “written administrative regulation, order, ruling, approval or interpretation by the [commissioner] or the [director] –only if it had acted in conformity with and reliance on ‘either the Commissioner’s final agency decision....or a Wage Collection referee’s final decision.’”17 Under the second prong concerning an “enforcement policy, ”the Appellate Division held that it must be a policy that carries the “imprimatur of the agency head.”18. The Appellate Division held that none of the three investigations satisfied either of these requirements, and that as to the 2006 opinion letter, although it would satisfy the defense, the employer could not show it had actually relied on it.19

The Supreme Court affirmed the holding of the Appellate Division. In the petition, the defendant argued that the federal standards under the similar Fair Labor Standards Act should control, while in apparent acknowledgment of their greater liberality toward employers, the plaintiff argued that those standards should not control.20 The New Jersey Supreme Court, for its part, though acknowledging the similarities of the New Jersey wage and hour law and FLSA, noted that the two acts have diverged in their interpretation from time to time.21 For example, the test to determine whether an individual is an “employee” diverges under the state law as compared to the FLSA.22 In particular, the Supreme Court noted that the FLSA and New Jersey law differed in their history in that, although both employed the same statutory language under the good faith exception, the federal regulations had elaborated on the definition of the terms administrative regulation, order, ruling, approval and interpretation, whereas the New Jersey law had not.23

As a result, without regulatory guidance, the New Jersey Supreme Court held that the plain language of the state wage and hour law’s good faith exception applies. Under that plain language, the Court held it was clear that “the employer must show compliance with and reliance on a regulation or an order, ruling, approval, or interpretation by the Commissioner or Director, not determinations by those officials’ subordinate employ- ees.”24 In addition, the Court held that the other prong of the defense that permits reliance on an enforcement policy must concern a policy that pertains to a “‘class of employers’ and their employees, not to adjudications of individual complaints against a given employer.”25 Reviewing these standards, the Court held that the three investigations could not satisfy the first prong of the good faith defense because they did not constitute a final determination of a matter by the Commissioner.26 However, in contrast to the Appellate Division, it disagreed that the 2006 opinion letter could satisfy the defense, because “it was not issued to defendant, and it apparently addressed a matter unrelated to this appeal.”27 In denying the employer’s claim to protection under the good faith exemption, the Court was not without sympathy for the difficulty of the employer in navigating enforcement policy, recognizing that the statutory scheme left the employer “in a difficult position.”28 Thus, the Court suggested that the department should “develop a procedure whereby an employer can seek an opinion letter or other ruling from the Commissioner or Director regarding a claimed exemption from the [law’s]overtime requirements.”29 Further, the Court suggested that “the Legislature and the Department determine whether additional statutory and/or regulatory guidance should be provided to employers and employees regarding the good-faith defense in [wage and hour] proceed-ings.”30 Finally, the Court suggested that regulations be adopted clarifying the critical terms of the act.31 Thus, as the conclusion of the Branch decision made clear, although the recent ruling has provided guidance in a much-needed area under the wage and hour law, there continues to be many unknowns in deter- mining the scope of the “good faith” exemption under New Jersey law. For example, it has not been clarified what types of agency “interpretations” would qualify to satisfy the defense, such as whether FAQ and other guidance documents published by the department could do so. Further, until procedures are adopted to obtain an opinion letter of the commissioner as suggested, it will continue to be difficult for an employer seeking to comply with the law to obtain a determination without proceeding to litigation. Thus, as wage and hour claims continue to grow and multiply, the Branch decision represents an important first step toward clarity that may require further litigation and agency or legislative action to fully resolve in the future.

Raymond M. Baldino is an associate at Zazzali, Fagella, Nowak, Kleinbaum & Friedman, P.C.

Endnotes

1. 244 N.J. 567 (2021).

2. See Keely v. Loomis Fargo & Co., 183 F.3d 257, 271 (3rd Cir. 1999).

3. Branch v. Cream-O-Land Dairy, 459 N.J. Super. 529, 546n6 (App. Div. 2019).

4. State v. Frech Funeral Home, 185 N.J. Super. 385, 394-96 (Law. Div. 1982); compare with Keely v. Loomis Fargo & Co., 183 F.3d 257, 269 (3rd Cir. 1999).

5. N.J.S.A. 34:11-56a25.

6. N.J.S.A. 34:11-56a25.2.

7. Branch, supra n.1,at 589. 8. Id. at 572-73.

8.Id.at572-73

9. N.J.S.A. 34:11-56a4f.

10. Branch, supra n.1, at 576.

11. Id.

12. Id. at 576-77.

13. Id. at 577. 14. Id. at 577-78.

14. Id. at 577-78.

15. Id. at 578.

16 Id.

17. Id. at 578-79.

18. Id. at 579.

19. Id

20. Id. at 580.

21. Id. at 583.

22. Hargrove v. Sleepy’s, LLC, 220 N.J. 289, 310-16(2015).

23. Branch, supra n.1, at 585-86.

24. Id at589.

25. Id.

26. Id. at 589-90.

27. Id. at 590.

28. Id.at 591.

29. Id.

30. Id.

31. Id. at 592.