Knowledgebase-Terminating Employees and Rehiring Them at a Lower Wage


Information Product

Title:Terminating Employees and Rehiring Them at a Lower Wage
Summary:MTAS was asked whether the city can terminate its dispatchers (who do not handle E-911 calls, but “local calls”) and rehire dispatchers at a lower wage rate.
Original Author:Hemsley, Sid
Co-Author:
Product Create Date:06/16/2010
Last Reviewed on::01/03/2017
Subject:Personnel--Fair Labor Standards Act; Personnel--Dismissal; Personnel--Selection and recruitment; Personnel--Compensation
Type:Legal Opinion
Legal Opinion: Terminating and Rehiring Employees public.doc

Reference Documents:

Text of Document: June 16, 2010

Dear City Manager:

You have the following question: Can the city terminate its dispatchers (who do not handle E-911 calls, but “local calls”), and rehire dispatchers at a lower wage rate?

This question implicates the Fair Labor Standards Act (FLSA), and for that reason is an extremely difficult question to answer. I have never found a case directly dealing with the termination of a group or certain class of employees, where the purpose of the termination is to hire a new group or class of employees at a lower wage rate.

Generally, in order to be actionable under the FLSA, a termination must be the product of retaliation for exercising rights under the FLSA. At first glance, where the purpose of a termination is economic rather than in retaliation for the employee having attempted to exercise his or her rights under the FLSA, the terminated employee would have no case against his or her employer. But nothing is ever that simple where federal law is concerned.

Tennessee is in the U.S. Sixth Circuit Court of Appeals, the decisions of which apply in Tennessee, and at least three cases have arisen in the Sixth Circuit that bear tangentially on your question. One case, an unreported one, appears to support a city that decides to fire a group of employees and hire a new group of employees at a lower wage. But unreported cases do not carry the same precedential weight as reported cases, and cannot even be cited by a plaintiff trying to support his case. However, most courts are aware of unreported cases and are generally free to ignore or cite them at their pleasure.

That unreported case is Cunningham v. Gibson County, 108 F.2d 1376, 1997 WL 123750 (6th Cir. (Tenn.)). There two ambulance drivers employed by the county and who were at-will employees, worked 12 hour shifts at Bradford Station. The county commission decided to make Bradford Station a 24 hour station and require its employees to work 24 hour shifts. The 30 employees of Bradford Station were asked to sign agreements under which they would forego compensation for 8 hours sleep time to which they were entitled under the FLSA, unless they were called out during their sleep period. The agreement was made a condition of continued employment. All of the Bradford Station employees signed the agreement except the two plaintiff ambulance drivers.

Section 215(a)(3) of the FLSA provided that it was unlawful “for any person ... to discharge or in any other manner to discriminate against any employee because such employee has filed any complaint .... under or related to this Act.” The county argued that the plaintiff ambulance drivers had not made such a complaint at the time they were terminated. The court rejected that argument, declaring essentially that the plaintiff ambulance drivers had complained before they were fired that forcing them to sign the agreement made them waive their right under the FLSA to compensation for sleep time. The court upheld the district courts award of back pay and reinstatement to their jobs.

But Judge Batchelder dissented, declaring that:


In reaching the conclusion that Gibson County violated 215(a)(3) of FLSA, the majority ignores the following facts: (1) plaintiffs were at-will employees whom the county could have terminated before Bradford Station adopted the twenty-four hour work schedule; (2) FLSA specifically permits an agreement which alleviates the need to compensate plaintiffs for sleep time; (3) the county, because of budget constraints, had to adopt a new work schedule that would cut costs if it was going to respond to its residents’ “overwhelming demand” to upgrade Bradford Station and offer twenty-four hour emergency medical service; (4) the county, premised the new schedule on an agreement that Bradford Station employees would not receive compensation for eight hours of sleep time; and of the thirty Bradford Station employees, plaintiffs were the only two who refused to sign the agreement. These facts are important because they illustrate the clear effect of the majority’s holding; namely, two “holdouts” can frustrate the community’s desire for twenty-four hour emergency medical service and determine the work schedule for the entire Bradford Station. Today’s holding is a peculiar elevation of form over substance, since the county could have terminated all Bradford Station employees, adopted the new schedule, and then required the same employees to agree to the new schedule as a condition of employment. Had Gibson County engaged in this ludicrous “fire/rehire” exercise, then plaintiffs would have been out of luck. [At 4] [Emphasis is mine.]

An important aspect of this case is that the majority agreed with the dissent! In Footnote 2 of that case, the majority said:

The dissent states that the plaintiffs who were at-will employees, are being allowed to “frustrate the community’s desire for twenty-four hour emergency medical service” because the county’s budget failed to allow for employees who chose not to waive their right to compensation for all hours on duty. The majority does not dispute the fact that had the county fired all the ambulance drivers, and then rehired only those that agreed to sleep time deductions, it would have behaved appropriately under the FLSA .... [At 3] [Emphasis is mine.]

Footnote 2 continues on to essentially say, “so be it, “that the remedy the county chose to handle the budget problems was not to fire and rehire employees, but to force them to waive their rights under the FLSA. That was not permissible under the FLSA, said the court, and “If the county’s plans for medical care are frustrated by this decision, it is solely the result of their erroneous judgment in selecting the means by which to accomplish their goals.” [At 3]

It appears that case would have been decided in favor of the county, if the county had used the fire/rehire method to confront its budget problems. I am reluctant to conclude that the city would be on safe ground to use the same method to handle economic problems related to its dispatchers. A number of cases, including a Sixth Circuit one, have held that wage reductions to avoid the economic consequences of the FLSA are illegal. In Blanton v. City of Murfreesboro, 856 F.2d 731 (6th Cir. 1988), the Sixth Circuit held that the city’s “downward adjustment of the base wage rates of its firefighters so as to offset the recently imposed cost of including such employees within the benefit provisions of the Fair Labor Standards Act” violated that Act, even though the city defended its action based on economic necessity. Section 8 of the FLSA provided that no state agency (including its political subdivisions) can “discriminate [ ] ... against an employee with respect to the employee’s wages or other terms or conditions of employment because ... the employee asserted coverage under Section 7 ....”(which provides for the threshold number of hours firefighters can work before they are due overtime pay.) In response to the city’s argument that it had not retaliated against the firefighters, the court declared that the firefighters were not required to show intention on the part of the city to discriminate against them. This case was brought by the firefighters shortly after the FLSA was made to apply to municipal governments. The court appears to acknowledge that at some point cities can reduce the pay rate of their employees without running afoul of the FLSA, but it is not clear when a city can–if ever–actually reach that point:

We would also note that the Joint Committee of Conference stated that section 8 was “not intended to prohibit State or local government employers from adjusting rates of pay at some later point [the court’s emphasis] in response to fiscal concerns not directly attributable to the impact of extending FLSA coverage to their employees.” [Citation omitted by me.] That committee explained that the purpose of section 8 was to prevent unilateral reductions in pay or benefits by public employers who would otherwise take such action “so as to negate the premium compensation mandated by this legislation.” Id. We believe this language and the previously cited legislative history clearly suggest that an employer has a defense to a unilateral reduction in wage rates only if the employer can prove that the employee wages were reduced out of fiscal concerns not attributable to extending the Act’s coverage to municipal employees. Public employers may not take such steps, however, solely and directly in response to the extension of the Act’s coverage. In the case at hand, however, that is precisely what the City of Murfreesboro did when confronted with the requirement of extending the Act’s coverage to its employees. Actions by public employers to reduce employee pay and benefits, taken as the sole and direct result of fiscal pressures created by the mandated extension of Fair Labor Standard Act benefits, run afoul of the strictures of Section 8.... [At 735]

Arguably, given the more than 20 years that have passed since the FLSA was made to apply to local governments, and given the fiscal pressures that have pressed down on those governments that–in theory, at least–are not directly related to the fiscal pressures from complying with the FLSA, a city should be able to fire and rehire employees without violating that Act. Indeed, in Anderson v. City of Bristol, 6 F.3d 1168 (6th cir. 1993), the Sixth Circuit held that recomputing the hourly wage rate of firefighters was not a violation of the FLSA. But that case involved a recomputation that had occurred before the Section 8 anti-discrimination provision at issue in Blanton v. City of Murfreesboro was adopted. So it is not necessarily helpful to the city.

A number of other federal cases have held that wage reductions to sidestep the economic effects of the FLSA are illegal. [See, for example, Teft v. State of Montana, 894 P.2d 317 (Mont. 1995), Drollinger v. State of Arizona, 962 F.2d 956 (9th Cir. 1992)]. However, some of these cases appear to apply to changes in wages made near the time the FSLA was made to apply to local governments. They also repeat the proposition appearing in Blanton v. City of Murfreesboro, that municipalities could make wage reductions for economic reasons not related to the economic burden imposed by the FLSA.

But I am reluctant to conclude that the unreported case of Cunningham v. Gibson County reflects solid support for the city to fire its dispatchers and hire new ones at a lower wage rate. Even if you are entitled to do it, the prospects of getting sued are quite high, and the defense of the suit will cost the city a hefty sum so that it will be a long time before the city sees positive financial results from its action. In addition, as the majority and dissent in that case, indicated, the employees in that case were at-will employees. The City is a home rule charter city, which was incorporated under the city manager commission charter as it read in when the city became home rule. With respect to the city’s employees, there are three provisions that have relevance to the question of whether they are at-will employees. Section 6-2032 says that:

The mayor or any commissioner or employee may be removed from office by the board of commissioners for crime or misdemeanor in office, for grave misconduct showing unfitness for public duty, or for permanent disability by a majority vote of the other members of the board voting for said removal. The procedure for such removal shall be upon specific charges in writing, with notice stating the time and place of the hearing ....

Section 6-2103 provides that, The recorder, chief of police, treasurer, city attorney, and all other officers, agents, and employees shall be appointed by the city manager and removed by him at any time. Section 6-2108(b) also provides that among the powers and duties of the city manager is the power to “Except in this charter provided, to appoint and remove all heads of departments and all subordinate officers and employees, all appointments to be made upon merit and fitness alone.”

Section 6-2032 appears to be inconsistent with Sections 6-2103 and 6-2108(b). That first section suggests that city employees are not at will, that they have a property right in their jobs. The latter two section suggest that city employees are subject to removal at the will of the city manager. I am not sure how terminations are handled in the city; I do not have a copy of the city’s personnel policy, if any. But I have looked at Section 6-2103 in the past; it is similar to Tennessee’s Ouster Law and to city charter provisions in the state that contain ouster provisions. I have determined that it probably only applies where the board of commissioners seeks to remove any officer or employee for the narrow reasons stated in Section 6-2103, and does not apply generally to the removal of employees. But the question of whether city employees have a property right in their jobs, or are subject to removal at will be the city manager, is likely to arise if the city fires a group of employees.

Sincerely,

Sidney D. Hemsley
Senior Law Consultant

SDH/

Please remember that these legal opinions were written based on the facts of a given city at a certain time. The laws referenced in any opinion may have changed or may not be applicable to your city or circumstances.

Always consult with your city attorney or an MTAS consultant before taking any action based on information contained in this database.