DENNIS E. WHITFIELD, DEPUTY SECRETARY OF LABOR, UNITED STATES DEPARTMENT OF LABOR, PETITIONER 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 Court of Appeals for the Third Circuit Brief for the Petitioner TABLE OF CONTENTS Opinions below Jurisdiction Statutory provision involved Statement Summary of argument Argument: I. The court of appeals erred in holding that a violation of the Fair Labor Standards Act is "willful" under the FLSA limitations provision only when the employer knowingly or recklessly disregards the requirements of the Act A. The meaning of "willful violation" depends on the statutory context and does not always include a requirement of knowing or reckless disregard of the law B. "Willful violation" in the FLSA limitations provision should be construed to protect employers from liabilities they reasonably failed to anticipate, but not to shift to employees the risk an employer assumes in pursuing pay practices of uncertain legality C. A violation of the FLSA should be deemed willful within the meaning of the FLSA limitations provision whenever an employer recognizes it may be covered by the FLSA and acts without a reasonable basis for believing it is complying with the statute II. As far as the present record shows, respondent pursued pay practices that do not reflect reliance on sound assurances of compliance with the statute Conclusion OPINIONS BELOW The opinion of the court of appeals (Pet. App. 1a-9a) is reported at 799 F.2d 80. The opinion of the district court (Pet. App. 10a-17a) is reported at 623 F. Supp. 667. JURISDICTION The judgment of the court of appeals (Pet. App. 22a-23a) was entered on August 26, 1986. A petition for rehearing with suggestion for rehearing en banc was denied on October 23, 1986 (Pet. App. 24a). Justice Brennan extended the time within which to file a petition for a writ of certiorari to March 19, 1987. The petition was filed on that date and granted on October 5, 1987. The jurisdiction of this Court is invoked under 28 U.S.C. 1254(1). STATUTORY PROVISION INVOLVED Section 6 of the Portal-to-Portal Act of 1947, as amended, 29 U.S.C. 255, provides, in relevant part: Any action * * * to enforce any cause of action for unpaid minimum wages, unpaid overtime compensation, or liquidated damages, under the Fair Labor Standards Act of 1938, as amended * * *, the Walsh-Healey Act * * *, or the Bacon-Davis Act * * * -- (a) * * * may be commenced within two years after the cause of action accrued, and every such action shall be forever barred unless commenced within two years after the cause of action accrued, except that a cause of action arising out of a willful violation may be commenced within three years after the cause of action accrued. QUESTION PRESENTED Whether the court of appeals erred in holding that a violation of the Fair Labor Standards Act of 1938 (FLSA), 29 U.S.C. (& Supp. III) 201 et seq., is "willful" within the meaning of the applicable statute of limitations, 29 U.S.C. 255(a), only where the employer, in acting contrary to the statute, knew that, or showed reckless disregard for whether, its conduct was prohibited by the FLSA. STATEMENT 1. a. The Fair labor Standards Act of 1938 (FLSA or Act), 29 U.S.C. (& Supp. III) 201 et seq., requires that covered employers adhere to certain standards in their compensation of covered employees. In particular, the Act requires, among other things, the payment of at least the prescribed minimum wage, currently $3.35 an hour (29 U.S.C. 206); the payment of one and one half times an employee's regular rate for overtime hours -- generally, for hours in excess of 40 hours per week (29 U.S.C. (& Supp. III) 207); and the payment of equal wages to men and women where required by the Equal Pay Act (29 U.S.C. 206(d)). The Act also requires covered employers to maintain, and to make available to the Department of Labor, certain wage and hour records (29 U.S.C. (& Supp. III) 211(c)). The Act specifies two overlapping categories of covered employees. All employees who themselves are engaged in interstate commerce or the production of goods for such commerce are subject to the FLSA's wage and hour requirements. In addition, all employees of an "enterprise" that is engaged in interstate commerce or the production of goods for such commerce are covered by the FLSA. 29 U.S.C. 206(a), 207(a)(1); see Tony & Susan Alamo Found. v. Secretary of Labor, 471 U.S. 290, 295 n.8 (1985). /1/ Even when those coverage tests are met, an employer may nonetheless avoid some or all of the FLSA's requirements for some or all of its employees. The Act includes numerous partial or total exemptions, which Congress has frequently changed over the years, for particular industries or occupations. See 29 U.S.C. 213(a)(1)-(15) (exemptions from minimum wage, overtime, or Equal Pay Act requirements) and (b)(1)-(29) (exemptions from overtime requirements only). /2/ Exemptions to the FLSA are construed narrowly, however, and employers bear the burden of proving entitlement to any claimed exemption. Arnold v. Ben Kanowsky, Inc., 361 U.S. 388, 392, 394 n.11 (1960). See also Citicorp Indus. Credit, Inc. v. Brock, No. 86-88 (June 22, 1987), slip op. 8. The FLSA provides three judicial remedies for violations of its pay provisions. First, the United States may bring a criminal prosecution against a person who willfully violates the Act's wage and hour requirements (29 U.S.C. 216(a)). Second, the Secretary of Labor may bring an injunctive suit seeking back pay and/or an injunction against future violations (29 U.S.C. 217). Third, either the Secretary of Labor or affected employees may bring a civil action to recover unlawfully withheld wages (29 U.S.C. 216(b) and (c)). /3/ In this third type of action, regardless of who brings the suit, employees are entitled not only to the unlawfully withheld wages but also, presumptively, to an equal amount of liquidated damages (ibid.). If, however, the employer proves that the act or omission giving rise to its violation was in good faith and with reasonable grounds for believing that it was lawful under the FLSA, the trial court has discretion to reduce or eliminate the liquidated damages portion of the award (26 U.S.C. 260). b. As enacted in 1938, the FLSA had no statute of limitations to govern injunctive or non-injunctive actions for unpaid minimum wages, overtime compensation, or liquidated damages. See 29 U.S.C. (1940 ed.) 201 et seq. /4/ The courts accordingly applied state statutes of limitations to those FLSA actions. See, e.g., Donovan v. Shell Oil Co., 168 F.2d 229 (4th Cir. 1948); Mid-Continent Petroleum Corp. v. Keen, 157 F.2d 310 (8th Cir. 1946); Loggins v. Steel Constr. Co., 129 F.2d 118 (5th Cir. 1942). In 1947, however, in Section 6(a) of the Portal-to-Portal Act, ch. 52, 61 Stat. 88, Congress enacted a uniform two-year statute of limitations for such FLSA actions. This two-year limitations period remained in effect until 1966, when Congress extensively amended the FLSA. The amendments increased the minimum wage, tightened exemptions, and vastly expanded the Act's coverage: more than 7 million new workers and approximately 700,000 new establishments were made subject to the FLSA. Fair Labor Standards Amendments of 1966, Pub. L. No. 89-601, Tits. II & III, 80 Stat. 833-841. /5/ The amendments also changed the statute of limitations to its present form, which requires that a cause of action for unpaid minimum wages, unpaid overtime compensation, or liquidated damages under the FLSA be brought within two years, "except that a cause of action arising out of a willful violation may be commenced within three years" (29 U.S.C. 255(a)). /6/ 2. a. Respondent Richland Shoe Company, a manufacturer of foot-wear and other leather products, employed certain mechanics to repair and to maintain equipment in its plant. Though their hours fluctuated, the mechanics worked on average more than 40 hours a week (see Pet. App. 10a, 13a; J.A. 34-61). Nevertheless, contrary to the statutory requirement (29 U.S.C. 207(a)), respondent paid the mechanics a weekly salary on a "base week" of 48 hours, with a "half time" rate for hours in excess of that base week (Pet. App. 13a; see J.A. 34-61). In 1984, the Secretary of Labor brought suit against respondent under 29 U.S.C. 217, seeking to enjoin future violations of the FLSA's recordkeeping and overtime provisions and to recover back wages for the affected mechanics (J.A. 4-7). Respondent alleged as an affirmative defense that the Secretary's action was time-barred because it was not brought within two years of the alleged violations, as required by 29 U.S.C. 255(a) (J.A. 13). On the merits, respondent sought to excuse its noncompliance with the FLSA's overtime requirements by invoking the statutory exception for "Belo plans" (29 U.S.C. 207(f)). See Walling v. A.H. Belo Corp., 316 U.S. 624 (1942). That exception permits employers to pay a weekly "salary" on a base week of up to 60 hours if certain conditions are met. Among other requirements, the duties of the employees covered by such a payment plan must "necessitate irregular hours of work" (29 U.S.C. 207(f)), and the fluctuation in hours must be both above and below 40 hours per week. /7/ The Belo plan exception is narrowly drawn to provide the "'security of a regular weekly income'" to employees who cannot, without some guarantee, know in advance whether they will receive pay for 40 hours of work in a week. Donovan v. Brown Equip. & Serv. Tools, Inc., 666 F.2d 148, 153 (5th Cir. 1982) (quoting Walling v. A.H. Belo Corp., 316 U.S. at 635). The district court granted summary judgment to the Secretary. The court first agreed that respondent's compensation system was not a valid Belo plan because the mechanics' hours did not fluctuate significantly below 40 hours a week (Pet. App. 14a). /8/ Having found an FLSA violation, the district court also agreed with the Secretary that respondent's violation was "willful" within the meaning of 29 U.S.C. 255(a), so that the mechanics were entitled to three rather than two years' back wages. The court reasoned that willfulness under Section 255(a) "requires nothing more than that the employer has an awareness of the possible application of the FLSA" (Pet. App. 15a), a standard drawn from Coleman v. Jiffy June Farms, Inc., 458 F.2d 1139, 1142 (5th Cir. 1971) ("the employer knew or suspected that his actions might violate the FLSA. Stated most simply, we think the test should be: Did the employer know the FLSA was in the picture?"), cert. denied, 409 U.S. 948 (1972), and Brennan v. Heard, 491 F.2d 1, 3 (5th Cir. 1974) (emphasis in original) ("An employer acts willfully * * * if he knows, or has reason to know, that his conduct is governed by the (FLSA)."). In this case, the court found, willfulness was shown by the admission of respondent's general manager that he was aware that the FLSA governed overtime systems such as the one applied to respondent's mechanics (Pet. App. 15a-16a). Accordingly, the district court enjoined respondent from committing future violations and ordered back pay (id. at 16a, 19a-20a). b. The court of appeals affirmed the district court's holding that respondent violated the FLSA, rejecting as "totally without merit" respondent's contentions that its plan met the requirements for a Belo plan and that the injunctive relief was inequitable (Pet. App. 3a n.2). Nevertheless, the court of appeals vacated the district court's award of back pay, ruling that the district court had applied an incorrect standard of willfulness under 29 U.S.C. 255(a). The court of appeals first concluded that the standard applied by the district court was "wrong because it is contrary to the plain meaning of the FLSA" (Pet. App. 5a). The court stated that it was "clear that willfulness is akin to intentionality" and that the standard, therefore, at a minimum "requires reckless disregard" of consequences (ibid.). That "plain meaning," the court found, was not contradicted by any legislative history of which the court was aware (id. at 6a, 8a-9a). Moreover, the court reasoned, the standard used by the district court would make virtually all violations willful and thus would circumvent the two-tier scheme of liability that Congress intended (id. at 6a). The court of appeals also relied on this Court's recent decision in Trans World Airlines, Inc. v. Thurston, 469 U.S. 111, 125-128 (1985). The Court there construed 29 U.S.C. 626(b), which restricts the award of liquidated damages under the Age Discrimination in Employment Act (ADEA) to cases of "willful violation()." The Court held that the provision requires a knowing violation of, or reckless disregard for, the requirements of the ADEA. The court of appeals characterized Thurston as involving "a context very similar to the one at issue here" (Pet. App. 7a). It also noted that, while other courts of appeals had adopted standards for Section 255(a) more encompassing than the Thurston standard (Pet. App. 4a n.4) and at least one circuit had expressly found Thurston inapplicable, /9/ the Seventh Circuit had adopted the Thurston standard for Section 255(a) in Walton v. United Consumers Club, Inc., 786 F.2d 303 (1986). See Pet. App. 4a n.4, 6a, 7a-8a. The court of appeals followed Walton and concluded that the three-year limitations period for an FLSA "willful violation" applies only if the employer "knew or showed reckless disregard for the matter of whether its conduct was prohibited by the FLSA" (Pet. App. 8a (emphasis omitted)). SUMMARY OF ARGUMENT The terms "willful" and "willful violation" have a broad range of meanings, denoting anything from a conscious act taken in complete ignorance of the law to an act taken with bad purpose or a specific intent to violate the law. As the Court's decision in Thurston illustrates, the precise significance to be attached to those words must depend in part on the manner and context in which they are used. The court of appeals erred when it concluded that "willful" has a "plain meaning" that, whatever the context, requires at least a reckless disregard of the law. This Court in Thurston (469 U.S. at 126) found a "reckless disregard" standard for willfulness acceptable in the ADEA liquidated damages context, relying chiefly on the punitive purpose of liquidated damages under the ADEA. Unlike its use in the ADEA liquidated damages provision, the use of "willful violation" in the FLSA limitations provision does not set a prerequisite for a punitive sanction. It instead defines the statute of limitations for any relief under the FLSA, and what is at stake here is simply whether employees who were unlawfully underpaid for three years may recover the full three years of back pay or, instead, only two-thirds of that amount. Moreover, the legislative history of the limitations provision contains no suggestion that the "willful violation" standard was intended to punish employers. That history suggests, rather, that the standard was designed to provide employers with some protection from liabilities that they reasonably failed to anticipate, while allowing employees and the Department of Labor needed additional time to challenge unlawful pay practices. More specifically, the limitations provision should be construed to require that employers, rather than their employees, bear the risk that questionable pay practices may turn out to violate the FLSA. This allocation of risk is also supported by the post-enactment judicial and legislative history of the provision, by other provisions of the FLSA, and by the general rule that FLSA provisions should be interpreted to protect, rather than restrict, employees' rights. For those reasons, "knowing or reckless disregard" sets too high a standard for allowing employees to recover a third year of back pay. We also believe that the "in the picture" standard adopted by the district court (at our urging) sets too low a standard. Because so few employers today would be unaware that the FLSA is in the picture, such a standard threatens to collapse the two-tier scheme envisioned by Congress into a one-tier scheme. Further, the "in the picture" standard goes beyond the policy of requiring employers to bear the risk of uncertain pay practices and might even discourage employers, once they are aware the FLSA is "in the picture," from seeking reliable advice about their legal obligations. We think an employer's unlawful pay practices should be found willful for purposes of the FLSA limitations provision when the employer is aware of the potential application of the FLSA but pursues the pay practices without reliable assurances of their legality. Thus, the inquiry should focus initially on whether, in pursuing practices later found to violate the law, an employer was aware of an appreciable possibility that the law applied to its business. If such awareness is present, but the employer fails to take steps reasonably calculated to determine whether its practices comply with the law, its violations should be considered willful. If the employer does take steps to determine its legal responsibilities, then it may limit its liability by showing that it received reasonable advice that its practices complied with the law and that it relied in good faith on such advice. This standard effectuates Congress's intent to create two tiers of liability for FLSA violations, without shifting to employees the risk of error when an employer pursues practices of uncertain validity. Under the standard we propose, the only conclusion possible on the present record is that respondent willfully violated the FLSA. There is no evidence in the record that respondent, who was concededly aware that the FLSA applied, ever attempted to determine the validity of its purported Belo plan. Even if such attempts had been made, moreover, we find it hard to imagine how the plan could have been the product of good faith reliance on sound assurances of the plan's legality. The plan is contrary to well-established Department of Labor regulations and court decisions, and there are unexplained recordkeeping and wage violations that raise questions as to whether respondent was genuinely attempting even to follow the plan it asserted. /10/ ARGUMENT I. THE COURT OF APPEALS ERRED IN HOLDING THAT A VIOLATION OF THE FAIR LABOR STANDARDS ACT IS "WILLFUL" UNDER THE FLSA LIMITAITONS PROVISION ONLY WHEN THE EMPLOYER KNOWINGLY OR RECKLESSLY DISREGARDS THE REQUIREMENTS OF THE ACT The court of appeals insisted that, as a matter of plain meaning independent of statutory context, "(a)t the very least a willful act requires reckless disregard of the consequences" (Pet. App. 5a). Under that interpretation, an FLSA back pay recovery is limited to two years unless the employer knows that the law prohibits its actions and decides to violate the law anyway, or the employer's actions show a "reckless disregard" for whether or not it is complying with the law (id. at 8a). In our view, that definition of "willful violation" is too restrictive and, if left uncorrected, would frustrate the purposes of the FLSA. A. The Meaning of "Willful Violation" Depends On The Statutory Context And Does Not Always Include A Requirement Of Knowing Or Reckless Disregard Of The Law This Court has repeatedly recognized that "willful" is a word "of many meanings, its construction often being influenced by its context" (Spies v. United States, 317 U.S. 492, 497 (1943)). See Screws v. United States, 325 U.S. 91, 101 (1945) (opinion of Douglas, J.); United States v. Murdock, 290 U.S. 389, 394-395 (1933). Thus, in numerous cases construing "willful" or "willfull violation," the Court has carefully examined the particular statutory scheme at issue to determine which meaning was appropriate within that scheme. See, e.g., United States v. Bishop, 412 U.S. 346, 360-361 (1973); Screws v. United States, 325 U.S. at 101; Spies v. United States, 317 U.S. at 497-498; Browder v. United States, 312 U.S. 335 (1941); United States v. Illinois Cent. R.R., 303 U.S. 239, 242-244 (1938); United States v. Murdock, 290 U.S. at 394-395. Accord United States v. Perplies, 165 F.2d 874, 876 (7th Cir. 1948) ("The context of the statute in which the word 'willful' is used is often most important."). In fact, in Thurston itself (469 U.S. at 125-128), the Court adopted the knowing or reckless disregard standard, not on the basis of a supposed plain meaning, but only after analyzing the purposes and context of the ADEA liquidated damages provision. As the court of appeals noted (Pet. App. 5a), "willful" refers to an intentional state of mind, but the object of the intent -- what exactly must be intended -- varies greatly. Even in the criminal context, where the concept is most frequently employed, willfulness is given a wide range of meanings. In some criminal statutes, the term means "with evil purpose, criminal intent or the like" (United States v. Illinois Cent. R.R., 303 U.S. at 242). In other criminal statutes, an intent to do evil is not required. See, e.g., Fields v. United States, 164 F.2d 97, 99-100 (D.C. Cir. 1947), cert. denied, 332 U.S. 851 (1948); American Surety Co. v. Sullivan, 7 F.2d 605, 606 (2d Cir. 1925) (L. Hand, J.). In a variety of criminal statutes, all that is required is that "the act was deliberate, voluntary and intentional as distinguished from one committed through inadvertence, accidentally or by ordinary negligence" (Nabob Oil Co. v. United States, 190 F.2d 478, 480 (10th Cir.), cert. denied, 342 U.S. 876 (1952) (footnote omitted)) or "that the person charged with the duty knows what he is doing. It does not mean that, in addition, he must suppose that he is breaking the law" (American Surety Co. v. Sullivan, 7 F.2d at 606). Indeed, under a predecessor statute to the FLSA, this Court has held that an employer may be convicted of "intentionally violat(ing)" a wage and hour law merely by intending to do what the law forbids, even though the employer is ignorant of the law's requirements (Ellis v. United States, 206 U.S. 246 (1907) (Holmes, J.)). See also Murdock, 290 U.S. at 394 (recognizing the "voluntary act" definition of "willful" as well as the "bad purpose" and "reckless disregard" definitions). The meaning of "willful" and "willful violation" likewise varies in civil statutes. For example, under Section 15(b)(4)(D) of the Securities Exchange Act of 1934 (15 U.S.C. (& Supp. III) 78o(b)(4)(D)), for administrative sanctions to be imposed on brokers and dealers who have "willfully violated" certain securities laws, proof has been required only "'that the broker-dealer acted intentionally in the sense that he was aware of what he was doing.'" Authur Lipper Corp. v. SEC, 547 F.2d 171, 180 (2d Cir. 1976), cert. denied, 434 U.S. 1009 (1978) (Friendly, J.) (quoting 2 L. Loss, Securities Regulation 1309 (1961)). A similar meaning has been found under some state statutes that penalize an employer's willful failure to pay wages in a timely manner as required by law. State ex rel. Nilsen v. Johnston, 233 Or. 103, 108, 377 P.2d 331, 333 (1962) (quoting Davis v. Morris, 37 Cal. App. 2d 269, 274, 99 P.2d 345, 348 (1940)) ("the person knows what he is doing, intends to do what he is doing, and is a free agent")). In still other civil statutes whose purpose is to compensate employees for injury rather than to penalize, courts have sometimes found a willful violation when the employer is merely negligent in failing to become aware of the violation. E.g., Kennerly v. Shell Oil Co., 13 Ill, 2d 431, 439, 150 N.E.2d 134, 139 (1958) ("willful violation" of Illinois occupational safety statute found "when by the exercise of reasonable care the existence of such dangerous conditions (producing the injury) could have been discovered and become known to" the employer). And, as we noted below (pages 31-32, infra), until this Court's decision in Thurston, the courts of appeals uniformly construed "willful violation" in the FLSA statute of limitations to require something less than reckless disregard of the law. /11/ Neither the word "willful" nor the phrase "willful violation," it is apparent, has a single readily discernible meaning or is capable of being understood without inquiry into the particular statutory context in which the term is used. That inquiry must take account of the fact that the meaning of "willful violation" in a given statute will largely determine the allocation of risks between those whose conduct given rise to the violation and the victims of the conduct. A statute that makes an individual liable for a "willful violation," depending on what meaning the legislature intended the phrase to have, may be assigning to that individual either a high risk of liability (if mere voluntariness is sufficient), a low risk (if, e.g., deliberate flouting of known legal obligations is required), or some intermediate degree of risk (if, e.g., intentional taking of risky action is the standard). The statute would simultaneously be assigning a complementary degree of risk to the victim of the conduct: the greater the protection of the violator, the greater the exposure of the victim. Accordingly, in determining the meaning of "willfull violation" as used in 29 U.S.C. 255(a), it is important to consider the appropriate balance of risks to employers and employees under the statutory scheme of the FLSA. B. "Willful Violations" In The FLSA Limitations Provision Should Be Construed To Protect Employers From Liabilities They Reasonably Failed to Anticipate, But Not To Shift To Employees The Risk An Employer Assumes In Pursuing Pay Practices of Uncertain Legality In Trans World Airlines, Inc. v. Thurston, 469 U.S. at 125-130, which construed the ADEA provision that restricts liquidated damages to cases of "willful violations" (29 U.S.C. 626(b)), the Court adopted the "knowing or reckless disregard" standard as "an acceptable" and "reasonable" definition of willfulness (469 U.S. at 129, 126). That ruling rested primarily on the conclusion that Congress included liquidated damages in the ADEA as a substitute for a criminal enforcement provision and intended liquidated damages to serve a punitive goal (id. at 125-126). The Court also observed that the knowing or reckless disregard standard was consistent with the meaning of "willful" in other statutes (id. at 126-127) -- all of which, in fact, involved criminal or civil penalties. After noting that several courts had adopted the Jiffy June "in the picture" standard for the FLSA limitations provision (469 U.S. at 127), the Court pointed out that, even if those decisions were correct (a question the Court left open), a statute of limitations is different from a liquidated damages provision (id. at 127-128). Finally, the Court reasoned that the "in the picture" standard "would result in an award of double damages in almost every case," which would be contrary to Congress's intent to create "a two-tiered liability scheme" (id. at 128). The Thurston concept of knowing or reckless disregard is itself subject to various interpretations. The Seventh Circuit has construed Thurston to allow a finding of a willful violation of the ADEA when the employer "reasonably should have known" of the ADEA's requirements. Rengers v. WCLR Radio Station, 825 F.2d 160, 166 (1987). Moreover, relatively lenient constructions are suggested by this Court's quotation in Thurston (469 U.S. at 127) from United States v. Murdock, 290 U.S. at 395 (referring to mere "'careless disregard (for) whether or not one has the right so to act'")), as well as the Court's reference to the "good faith and reasonable grounds" standard of 29 U.S.C. 260 (see 469 U.S. at 128 n.22). /12/ On the other hand, sterner constructions that require higher levels of moral culpability, carelessness, or irresponsibility on the part of employers are suggested by the connotation of the term "reckless" as involving rash or wanton conduct, and by the temptation to read "reckless" as embodying a degree of culpability akin to that inherent in a knowing violation. /13/ If, as we assume arguendo, the Thurston definition of willfulness does not encompass all actions taken in the face of uncertain FLSA obligations, /14/ it would be inappropriate to apply that standard in the context of the FLSA limitations provision. In accordance with this Court's approach in Thurston, an analysis of all the relevant factors -- including the consequences of a willfulness determination, the non-punitive operation and purposes of the FLSA limitations provision, the post-enactment history of the provision, and the broader purposes of the FLSA and the standards for employer protection under other provisions of the FLSA -- shows that, in this setting, the risk of error should be borne by the employer. Section 255(a) should be construed to protect employers against a third year of back wage payments only for liabilities they could not reasonably have anticipated, not to shift to employees the risk of error when an employer pursues pay practices of uncertain validity. 1. The consequences to employers and employees of a willfulness determination in this case are strikingly different from what they were in Thurston. Under the provision construed in Thurston, a finding of willfulness triggers the payment to employees of punitive liquidated damages (in addition to the wrongfully withheld wages the employees receive whether or not the violation was willful). Only this punitive award is governed by the willfulness provision at issue in Thurston. Under the FLSA limitations provision, the stakes are not thus limited to the assessment of penalties. In every case to which the FLSA statute of limitations provision applies, the standard of willfulness determines the amount of purely compensatory relief an employee may receive. (In some cases -- although not in this one -- it also determines the amount of liquidated damages.) /15/ If a violation ceased more than two years, but less than three years, prior to suit, a finding of willfulness is needed to allow the suit to be brought at all. If the violation continued into the two-year period, and the suit may therefore be brought, the standard of willfulness determines whether those employees who were unlawfully underpaid for three years may receive the full three years of compensatory back pay or whether, instead, they are limited in their recovery to the most recent two years of back pay. Accordingly, an employer whose conduct is found not to be willful does not, as in Thurston, merely avoid imposition of a penalty. Rather, the employer escapes its obligation to pay wages (e.g., minimum wages, overtime compensation, equal pay for equal work) that it was legally obliged to pay its employees in the first place. 2. Whereas the ADEA liquidated damages provision was intended to be punitive, as this Court concluded in Thurston, no such conclusion can be drawn with respect to the third year of liability provided for in the FLSA statute of limitations. Contrary to the court of appeals' suggestion (Pet. App. 8a), there is nothing "essentially" or inherently punitive about providing for an extended statute of limitations. The mere fact of additional liability, especially where limited to an additional period of lost wages, as is the case here, by itself does not suggest a punitive intent. Nor does the "willful violation" clause of Section 255(a) play the punitive role in the structure of the FLSA that the liquidated damages provision plays in the ADEA. Indeed, the FLSA contains an expressly punitive provision -- 29 U.S.C. 216(a), which provides for criminal penalties. That is the proper FLSA parallel for the punitive ADEA liquidated damages provision, which, as this Court observed in Thurston (469 U.S. at 125), was included in the ADEA as a substitute for the FLSA criminal provision. The legislative history of the "willful violation" standard in Section 255(a), though sparse, confirms that the standard was not intended to define two classes of employers according to whether or not they are deserving of punishment. As we have noted, the FLSA had a uniform, two-year limitations period prior to enactment of the extensive FLSA amendments in 1966. /16/ The 1966 amendments "effected the most far-reaching changes in coverage and exemptions since the Act was adopted in 1938" (Bureau of National Affairs, The New Wage and Hour Law 39 (rev. ed. 1967)), bringing under the Act's coverage more than 7 million employees not previously covered (112 Cong. Rec. 21945-21946 (1966) (remarks of Rep. Farbstein), 22694 (remarks of Sen. Yarborough)) and providing for increases in the minimum wage. The present two-tier limitations scheme originated in the 89th Congress's consideration of the bills that became those amendments. After making several proposals for changes in the FLSA during the 88th Congress, none of which would have amended the FLSA statute of limitations (see Minimum Wage-Hour Legislation: Hearings On H.R. 9824 Before the Subcomm. on Labor of the House Comm. on Education and Labor, 88th Cong., 2d Sess. 2-42 (1964)), the Administration proposed bills during the 89th Congress that, among other things, would have extended FLSA coverage to some 4,600,000 additional employees (but would not have increased the minimum wage). See 111 Cong. Rec. 10793 (1965); Minimum Wage-Hour Amendments, 1965: Hearings on H.R. 8259 Before the General Subcomm. on Labor of the House Comm. on Education and Labor, 89th Cong., 1st Sess. 7 (1965) (H.R. 8259 was the Administration bill) (House Hearings); Amendments to the Fair Labor Standards Act: Hearings on S. 763 et al., Before the Subcomm. on Labor of the Senate Comm. on Labor and Public Welfare, 89th Cong., 1st Sess. 43 (1965) (S. 1986 was the Administration Bill) (Senate Hearings). In addition to the extension of coverage, the Administration bills proposed to extend the two-year statute of limitations to three years for all violations. House Hearings 7; Senate Hearings 25. Secretary of Labor W. Willard Wirtz explained that, in his Department's experience, "the 2-year limitation freezes our claims before, as a practical matter, there has been time for the employee to be expected to be fully advised about them" (House Hearings 21). He states (id. at 11; Senate Hearings 36): The lengthening of the statute of limitations to 3 years will allow workers more time to familiarize themselves with their legal right to back wages and thus improve enforcement of the act. The short statute of limitations gives competitive advantage to violators and penalizes many workers in the collection of wages legally due. The Federal criminal statute runs for 5 years and many other statutes run for 3 years or more. The existing 2-year period under FLSA is also shorter than allowed creditors of employees to collect money owed for food and rent bills. See also 111 Cong. Rec. 10794 (1965) (statement of sponsor Sen. McNamara); House Hearings 54 (remarks of Secretary Wirtz) (the 3-year proposal would bring the statute in line with what most state statutes of limitations provide); Senate Hearings 694, 718-719 (testimony and statement of David Dubinsky) (the 2-year period "is much too short" because the Labor Department's investigative resources are too small and "(m)any workers do not know their legal rights or fear loss of jobs if they sue their employer for underpayments"). During the House Hearings, Rep. Martin, an opponent of the 1966 FLSA amendments (see 112 Cong. Rec. 21948 (1966)), questioned Labor Secretary Wirtz about why the Department needed a third year to enforce the Act, given that most violations were not "deliberate" (House Hearings 54). Secretary Wirtz responded that the department had in fact experienced difficulties in enforcement, notwithstanding that "in most cases" violations of the FLSA were "inadverten(t)" and most employers voluntarily repaid back wages. He explained that the existing two-year limitations period excluded employees in a "substantial number" of cases from recovering back wages where the employer violated the law but would not voluntarily make repayment beyond the two-year period. Ibid. Others affirmatively expressed concern about the effect of the proposed three-year limitations period on employers. Rep. Pucinski, a proponent of the amendments (see 112 Cong. Rec. 21948 (1966)), suggested that an increase in the limitations period would hurt the restaurant industry, which was to be newly covered by the FLSA (House Hearings 1118). He assured industry representatives that the subcommittee understood the problems of small businesses and did not intend to run roughshod over their problems (id. at 1118-1119). Some employer representatives expressed concern about the impact of a three-year limitations period on small businesses (id. at 2250-2251). Objections to extending the limitations period were lodged on the grounds that employees were already familiar with their rights under the FLSA and that many violations are unwitting, inadvertent, unsuspecting, unintended, the result of honest mistakes, misunderstanding, misinterpretation of technical provisions, and good faith efforts to comply with the FLSA. See id. at 394, 533-534, 980, 1014, 1151, 2050, 2059, 2076-2077, 2241-2242, 2250-2251. /17/ See also Senate Hearings 737, 745-746, 771, 776, 799, 932-933, 1065-1066. Following hearings on the bill, the House Committee reported out a bill (H.R. 10275, 89th Cong., 1st Sess. (1965)) that extended employee protection considerably beyond the Administration proposal. The bill's expansion of coverage to previously uncovered employees was almost double what the Administration had proposed, and the bill increased the minimum wage by 40% over two years for workers already covered by the Act and 75% over four and a half years for newly covered workers. See H.R. Rep. 871, 89th Cong., 1st Sess. 74 (minority views), 81 (supplemental views of Rep. Martin) (1965). /18/ The committee bill also modified the Administration's proposed increase of the limitations period from two to three years for all violations, providing instead for a three-year period only in cases of a "willful violation" (id. at 13, 42, 73). The Committee gave no explanation for the change. The two-tier statute of limitations was then included in H.R. 13712, 89th Cong., 2d Sess. (1966), which became the Fair Labor Standards Amendments of 1966. Except for quotations or straightforward descriptions of the provision in the Committee Reports (H.R. Rep. 1366, supra, at 46, 77; S. Rep. 1487, supra, at 36, 69; H.R. Conf. Rep. 2004, 89th Cong., 2d Sess. 15 (1966)), and on the floors of the Senate (112 Cong. Rec. 20481, 22652 (1966) (remarks of Sen. Yarborough)) and House (112 Cong. Rec. 11282 (1966) (remarks of Rep. Dent)), no mention was made of the statute of limitations amendment in the rest of the legislative process. In sum, very little attention was paid in the legislative process to the proposed or ultimately enacted changes in the statute of limitations. With respect to Congress's decision to retain the two-year period for non-willful violations rather than adopt the Administration's proposed three-year rule for all cases, there is no "clearcut statement in the legislative history as to why the extension to three years was thus encumbered" (Laffey v. Northwest Airlines, Inc., 567 F.2d 429, 460 (D.C. Cir. 1976), cert. denied, 434 U.S. 1086 (1978) (Laffey I)). Although inferences from this limited legislative history must therefore be carefully drawn, it does not appear that the two-tier scheme embodies a congressional intent to punish "willful violations." Rather, the scant history available reflects a congressional balancing of the goal of affording employees additional protection and the desire to relieve employers of hardship from certain unexpected liabilities (as variously described by employer representatives). While extending the FLSA's protection of employees even further than the Administration had proposed, Congress was concerned that the broad expansion of the Act's coverage, and large minimum wage increases, would "bear too heavily upon an inevitably larger group of excusably inadvertent violators," including newly covered small businesses (Laffey I, 567 F.2d at 460 (footnote omitted)). See Laffey v. Northwest Airlines, Inc., 740 F.2d 1071, 1085-1087 (D.C. Cir. 1984), cert. denied, 469 U.S. 1181 (1985) (Laffey II) (reaffirming Laffey I's analysis of the legislative history). This balance of congressional policies -- the employer-protection objectives of the two-tier statute of limitations and Congress's clear employee-protection aims -- suggests that the two-year period should be available only to those employers who, though eventually found liable for violating the law, could not reasonably have anticipated the liability. Employers should bear the burden of the third year of liability when they engage in pay practices without resolving legal uncertainties. 3. The post-enactment judicial and legislative history of Section 255(a)'s two-tier statute of limitations likewise supports adoption of a standard that leaves the risk of uncertain pay practices more squarely on employers than the Thurston standard would seem to do. Beginning with the 1972 case of Coleman v. Jiffy June Farms, Inc., 458 F.2d at 1142, and for more than a dozen years thereafter, the courts of appeals uniformly construed "willful violation" in Section 255(a) to require something less than knowing or reckless disregard of the FLSA's requirements -- in most circuits, a mere recognition that the FLSA might apply; in a few circuits, some failure to resolve uncertainties. /19/ Not until this Court decided Thurston in 1985 did any court of appeals hold that a finding of willfulness under the FLSA statute of limitations required knowing or reckless disregard of the law. In those many years, Congress took no action to "correct" the judicial decisions. Significantly, Congress enacted amendments to the FLSA generally, and to Section 255 in particular, in 1974. The amendment to Section 255 simply added Subsection (d) /20/ and did not alter the "willful violation" standard of Section 255(a), although Jiffy June had been decided two years earlier. In the Senate debate, moreover, Senator Taft, an opponent of the proposed amendments (120 Cong. Rec. 5743 (1974)), included in the record a memorandum that described Jiffy June as the then-prevailing interpretation of willfulness under Section 255(a) (120 Cong. Rec. 4709-4710 (1974)). He explained: "'Wilful' has been interpreted by the courts to mean an awareness of the existence of the FLSA. Brennan v. J.M. Fields, Inc., 488 F.2d 443, 72 L.C. Para. 32993 (5 Cir. 1974). Coleman v. Jiffy June Farms, Inc., 458 F.2d 1139 (5 Cir. 1972)." He further explained that, under this view of willfulness, "an act committed in good faith may yet be wilful" (120 Cong. Rec. 4710 (1974)). Notwithstanding that explicit focus on the judicial construction of willfulness, Congress amended Section 255 without addressing the "willful violation" standard of Section 255(a). 4. The purposes, the general approach to interpretation, and other provisions of the FLSA also support a reading of "willful violation" that requires employers to bear the risk of error resulting from their own questionable pay practices. The FLSA is a broadly remedial statute, enacted to eliminate "labor conditions detrimental to the maintenance of the minimum standard of living necessary for health, efficiency, and general well-being of workers," and to ensure that the payment of substandard wages is not used as a method of competition in interstate commerce (29 U.S.C. 202(a)). The Act has accordingly long been interpreted "'liberally to apply to the furthest reaches consistent with Congressional direction'" (Tony & Susan Alamo Found. v. Secretary of Labor, 471 U.S. at 296 (citation omitted)). See Mitchell v. Robert DeMario Jewelry, Inc., 361 U.S 288, 292 (1960); Brooklyn Savings Bank v. O'Neil, 324 U.S. 697, 706-707 (1945); Tennessee Coal, Iron & R.R. v. Muscoda Local No. 123, 321 U.S. 590, 597 (1944); Overnight Motor Transp. Co. v. Missel, 316 U.S. 572, 576, 578 (1942). Thus, the provisions defining the coverage of the Act have been construed broadly (Tony & Susan Alamo Found., 471 U.S. at 295; United States v. Rosenwasser, 323 U.S. 360, 362-363 (1945)), and exemptions from the Act are construed narrowly, with the burden resting on employers that claim exemptions to prove that they come "plainly and unmistakably within their terms and spirit" (Aronold v. Ben Kanowsky, Inc., 361 U.S. at 392, 394 n.11 (footnote omitted); see A.H. Phillips, Inc. v. Walling, 324 U.S. 490, 493 (1945)). Especially in light of Congress's recognition of the principle of liberal construction of employee protections when it enacted the 1966 FLSA amendments (see H.R. Rep. 1366, supra, at 10; H.R. Rep. 871, supra, at 9), there is "no reason to deviate from (that) traditional approach" in construing Section 255(a) (Citicorp Indus. Credit, Inc. v. Brock, No. 86-88 (June 22, 1987), slip op. 8). This interpretation of Section 255(a) finds further support in two specific provisions of the FLSA. First, 29 U.S.C. 259, enacted as part of the Portal-to-Portal Act of 1947, provides that employees may be relieved of all liability if, in pursuing pay practices that are later found unlawful, they relied in good faith on certain administrative actions. In order to qualify for that protection, however, the employer must carry the burden of proving good faith reliance (29 U.S.C. 259(a)). Moreover, only certain actions of the official charged with administering the FLSA, and not those of any other agency or agency officer, may be relied on in FLSA cases (29 U.S.C. 259(b)); and if a "regulation, order ruling, approval, or interpretation," as opposed to a practice or enforcement policy, is relied on, it must be in writing (29 U.S.C. 259(a)). These stringent conditions contrast with the conditions for employer protection applicable under 29 U.S.C. 258 to employer actions taken prior to the enactment of the 1947 Act. For such actions, while the burden of proof was on the employer, any administrative agency could be relied on, not just the Administrator, and there was no requirement of a writing. The adoption of more stringent conditions for post-1947 pay practices reflected a careful compromise between House and Senate bills. See H.R. Conf. Rep. 326, 80th Cong., 1st Sess. 15-17 (1947); S. Rep. 48, 80th Cong., 1st Sess. 51 (1947); H.R. Rep. 71, 80th Cong., 1st Sess. 7 (1947). Similarly, 29 U.S.C. 260 offers another form of protection from employer liability, but denies it to certain employers that engage in questionable conduct. While liquidated damages in an amount equal to wrongfully withheld back wages are presumptively mandatory in actions under 29 U.S.C. 216(b) and (c), Section 260 allows a defense to such liability if an employer "shows to the satisfaction of the court that the act or omission giving rise to such action was in good faith and that he had reasonable grounds for believing that his act or omission was not a violation of the (FLSA)" (29 U.S.C. 260). See 29 C.F.R. 790.22(b). Under this standard, the employer must show more than a good faith belief that his conduct might turn out not to violate the Act; he must show a good faith and objectively reasonable belief that his conduct "was not a violation" (29 U.S.C. 260). Moreover, the provision has long been understood to require employers to make affirmative efforts to ensure their compliance with the Act. See, e.g., Williams v. Tri-County Growers, Inc., 747 F.2d 121, 129 (3d Cir. 1984) (provision requires "attempting to ascertain the Act's requirements"); Addison v. Huron Stevedoring Corp., 204 F.2d 88, 93 (2d Cir. 1953) (in addition to objective reasonableness, provision requires "an honest intention to ascertain what the (FLSA) requires and to act in accordance with it"); see also Joiner v. City of Macon, 814 F.2d 1537, 1539 (11th Cir. 1987). And even if an employer makes the showing of good faith and reasonable grounds, relief from liquidated damages is not automatic; rather, Congress expressly left it to the discretion of the district court whether to reduce or to eliminate liquidated damages (29 U.S.C. 260). See 29 C.F.R. 790.22(b); Laffey I, 567 F.2d at 465. /21/ In sum, a reading of the "willful violation" language as placing the risk of liability for the third year on employers who engage in uncertain pay practices comports with the FLSA as a whole. As the District of Columbia Circuit said in Laffey I (567 F.2d at 461) in discussing the proper interpretation of that language, there is "no good reason for translating the employer's error into a loss of pay for the employee." Not only does the standard of willfulness under Section 255(a) act as a limitation on compensatory (as distinguished from punitive) awards, but employers are in a much better position to ascertain the legality of their pay practices than are employees. It is appropriate that they be required to do so -- as employers are required to show similar diligence under Sections 259 and 260 -- if their violations are to be deemed other than willful and thus their liability limited to a period of two years. /22/ C. A Violation Of The FLSA Should Be Deemed Willful Within The Meaning Of The FLSA Limitations Provision Whenever An Employer Recognizes It May Be Covered By The FLSA And Acts Without A Reasonable Basis For Believing It Is Complying With The Statute Since this Court's decision in Thurston, three courts of appeals -- the third Circuit in this case, the Seventh Circuit in Walton v. United Consumers Club, Inc., supra, and the Fifth Circuit in Peters v. City of Shreveport, 818 F.2d 1148, 1167-1168 (1987) -- have construed "willful violation" in Section 255(a) to encompass only conduct that is knowingly or recklessly in violation of the law. Nine other courts of appeals adhere to interpretations that render a wider range of employer conduct willful and hence subject to the third year of liability. Although the courts' formulations vary, most of those courts have adopted a standard understood to be equivalent to the "in the picture" standard articulated by the Fifth Circuit in Jiffy June and applied by the district court (at our urging) in this case. Such courts find a violation willful under Section 255(a) if the "employer knew, or should have known, that there was an appreciable possibility that the employees involved were covered by the Act" (EEOC v. First Citizens Bank, 758 F.2d 397, 401 (9th Cir.), cert. denied, 474 U.S. 902 (1985)). /23/ On the other hand, the District of Columbia Circuit adheres to a standard that appears to fall somewhere between the Thurston standard and the Jiffy June standard, finding an employer's noncompliance willful "at the very least * * * when he is congnizant of an appreciable possibility that he may be subject to the statutory requirements and fails to take steps reasonably calculated to resolve the doubt" (Laffey I, 567 F.2d at 461-462 (footnote omitted)). See Laffey II, 740 F.2d at 1085-1087 (standard reaffirmed). /24/ While we believe, as we have explained, that Thurston's knowing or reckless disregard standard sets too high a threshold before employee recovery may be extended from two to three years under the FLSA statute of limitations, we also now believe that the Jiffy June "in the picture" standard sets too low a threshold. As this Court found in Thurston (469 U.S. at 128), the "in the picture" standard seems to give too little effect to Congress's express intent to create two tiers of liability in the FLSA limitations provision. Among employers eventually found to have violated the FLSA, it would seem that there are not many who did not know that the Act was "in the picture." /25/ It may be "virtually impossible for an employer to show that he was unaware of the Act and its potential applicability" (ibid.). In addition, the Jiffy June standard would impose a third year of liability even on those employers who firmly and reasonably (albeit wrongly) believe that their pay practices are lawful, a result that seems counter to the concerns expressed in the legislative process during the 89th Congress. Finally, in imposing the third year of liability on an employer as soon as it is aware that the FLSA is in the picture, the Jiffy June standard neutralizes the two-tier limitations scheme as a possible incentive for the employer to seek further advice about how to conform its practices to law. See Note, Standards of Willfulness Under the Fair Labor Standards Act, 78 Mich. L. Rev. 626, 632-633 (1980). In that respect, the "in the picture" standard might actually lead to more violations than a standard that encourages the seeking of reliable advice. A standard based on the formulation in Laffey and akin to the standard found in 29 U.S.C. 260, we believe, results in the most appropriate interpretation of the FLSA's limitation provision. Specifically, an employer's violation should be held willful if the employer, recognizing it may be covered by the FLSA, acted without a reasonable basis for believing that it was complying with the statute. Such a basis may be absent because the employer failed to seek a reliable determination of its obligations under the FLSA or because the advice it received afforded no sound basis for eliminating existing uncertainties about the employer's compliance. As the District of Columbia Circuit (and most other courts of appeals) have concluded, the first step of the inquiry should be whether an employer, in violating the law, knew that there was an appreciable possibility that the law applied to its business. If not, it should be excused from a third year of liability, in accord with the congressional intent to free the entirely inadvertent violator from this obligation. As we have noted, however, among employers eventually found to have violated the FLSA, most probably can be charged with awareness of an appreciable possibility that their pay practices were covered by the statute. With respect to such an employer, the inquiry should turn to whether the employer took steps to determine its legal obligations and to fulfill them. If the employer took no such steps, it should be obligated to compensate its employees for the third year of its illegal pay practices. There is no indication that Congress intended to reward an "ostrichlike cultivation of ignorance" (Brennan v. Heard, 491 F.2d at 3) by excusing from a third year of liability an employer that failed reasonably to investigate its FLSA responsibilities, with awareness that the FLSA might apply to its business. /26/ On the other hand, a defense to an alleged "willful violation" should be available to an employer that can prove that it took steps reasonably calculated to resolve the doubt as to the validity of its employment practices and relied on reasonable advice eliminating uncertainties as to the legality of its pay practices. The standard we propose respects Congress's intent to create two tiers of liability under the statute of limitations. In this regard, and in substance as well, it bears a resemblance to the Section 260 requirement that, to obtain a reduction of liquidated damages, an employer must show good faith reliance on reasonable grounds for believing its conduct did not violate the FLSA. This standard also provides an incentive to employers to seek advice to conform their pay practices to the law and thus makes violations less likely. It places in employers' hands a substantial degree of control over whether they will be subject to a third year of back pay. And consistent with the congressional balance of policies embodied in Section 255(a) and in the FLSA as a whole, it places on the employers rather than employees the risk of legally uncertain conduct. See Donovan v. KFC Nat'l Mgt. Co., 682 F.2d at 605 (an employer willfully violates the FLSA when it relies on attorney's advice that it is partially exempt from the FLSA's overtime requirements but is aware of a Department of Labor opinion to the contrary); compare Whitfield v. City of Knoxville, 756 F.2d at 463-464 (a violation of the ADEA is not willful under the Thurston standard if the employer continues particular practices in the face of divided court opinions as to their legality). /27/ II. AS FAR AS THE PRESENT RECORD SHOWS, RESPONDENT PURSUED PAY PRACTICES THAT DO NOT REFLECT RELIANCE ON SOUND ASSURANCES OF COMPLIANCE WITH THE STATUTE Under the standard we propose, the only conclusion possible on the present record in this case is that respondent willfully violated the FLSA for purposes of Section 255(a). Respondent's general manager admitted that he was aware that the FLSA applied to his business (Pet. App. 15a; J.A. 28). There is no evidence in the record to indicate that respondent ever undertook an inquiry into the legality of its pay plan for mechanics. In fact, the record shows that respondent's general manager simply turned over payroll matters to a bookkeeper who he believed would "know how to handle" them (J.A. 29-30). Even if respondent had undertaken some inquiry, moreover, it is hard to see how the pay plan could conceivably have rested on sound advice that it complied with the statute. Respondent sought to defend its plan only under the well-established Belo plan exception to the FLSA's overtime requirements. See 29 U.S.C. 207(f); 29 C.F.R. 778.402-778.414; Walling v. A.H. Belo Corp., supra. Employers have been on notice for at least 20 years, however, that the Department of Labor and courts require employers that claim such an exemption to prove, among other things, that the nature of an employee's work necessitates wide and unpredictable fluctuations in the numbers of hours an employee works, both above and below 40 hours a week. See, e.g., Foremost Dairies, Inc. v. Wirtz, 381 F.2d 653, 657-661 (5th Cir. 1967), cert. denied, 390 U.S. 946 (1968); 29 C.F.R. 778.406; Annotation, 5 A.L.R. Fed. 793, 810-812 (1970). This requirement is necessary "because any other construction of (the Belo plan exception) would seriously challenge the effectiveness of Section 7(a) of the Act," which sets the general overtime requirements (Foremost Dairies, Inc. v. Wirtz, 381 F.2d at 660). "Obviously, Belo plans are not allowable merely because they allow an employer to work employees forty hours a week without paying them time and one-half" (Pet. App. 12a). In light of those judicial and administrative pronouncements, no employer relying on sound advice would regularly work its employees more than 40 hours a week, as respondent did (see id. at 13a-14a; J.A. 34-61), and then expect to meet the requirements of the Belo plan exception. /28/ Although the present record would seem to support summary judgment against respondent on the issue of Section 255(a) willfulness, the record was developed in light of a different legal standard from the one we now urge. Accordingly, respondent should be afforded an opportunity to present new evidence, including evidence of any efforts it undertook to secure reliable assurances that its pay practices complied with the FLSA. If respondent acknowledges in this Court that there is no such evidence, this Court should order affirmance of the district court judgment. Otherwise, the case should be returned to the district court for further proceedings on the third year of backpay liability. CONCLUSION The judgment of the court of appeals should be vacated. Respectfully submitted. CHARLES FRIED Solicitor General DONALD B. AYER Deputy Solicitor General RICHARD G. TARANTO Assistant to the Solicitor General GEORGE R. SALEM Solicitor of Labor ALLEN H. FELDMAN Associate Solicitor MARY-HELEN MAUTNER Counsel for Appellate Litigation EDWARD D. SIEGER Attorney NOVEMBER 1987 /1/ A business is subject to "enterprise" coverage if it (i) meets the complex statutory definition of "enterprise" (29 U.S.C. 203(r)); (ii) has employees with certain connections to interstate commerce (29 U.S.C. 203(s)); and (iii) either has an "annual gross volume of sales made or business done" that is above certain specified amounts or is engaged in certain specified types of activity (e.g., a laundry business, construction, education) (29 U.S.C. 203(s)). /2/ For example, neither the minimum wage nor overtime requirements of the Act generally apply to employees who work in "a bona fide executive, administrative, or professional capacity" or "in the capacity of outside salesman" (29 U.S.C. 213(a)(1)). The Equal Pay Act (29 U.S.C. 206(d)) remains applicable to employees who come within this exemption. See 29 U.S.C. 213(a). /3/ The right of employees to file suit on their own behalf terminates when the Secretary sues either to recover unpaid wages and liquidated damages or to enjoin future violations and to recover back pay. 29 U.S.C. 216(b) and (c). /4/ Criminal prosecutions under the FLSA have always been subject to the general federal criminal statute of limitations. See 18 U.S.C. 3282 (five years). /5/ See S. Rep. 1487, 89th Cong., 2d Sess. 2 (1966) (new workers); H.R. Rep. 1366, 89th Cong., 2 Sess. 18 (1966) (new workers); Wage and Hour and Public Contracts Divisions, U.S. Dep't of Labor, Minimum Wage and Maximum Hours Standards under the Fair Labor Standards Act, Submitted to the Congress -- 1968, at 27 (increase in number of employers). /6/ This amended statute of limitations applies to causes of action under the Equal Pay Act, which is part of the FLSA (29 U.S.C. 206(d)(3)), and, by its own terms, to causes of action under the Walsh-Healey Act, 41 U.S.C. (& Supp. III) 35 et seq., and the Davis-Bacon Act, 40 U.S.C. 276a et seq., which impose certain labor conditions on certain government contractors. The limitations provision is made applicable to actions under the Age Discrimination in Employment Act of 1967 (ADEA), 29 U.S.C. (& Supp. III) 621 et seq., by express language of that statute (29 U.S.C. 626(e)(1)). Throughout this brief, we refer to the limitations provision as the FLSA statute of limitations. /7/ Under the Department of Labor's interpretive regulations (29 C.F.R. 778.406), "(n)onovertime hours as well as overtime hours must be irregular" for the Belo plan exception to apply. In addition, a valid "Belo plan" must be set forth in a bona fide individual employment contract or collective bargaining agreement, which must specify a regular rate of pay not less than the minimum wage for hours up to 40 per week, and payment at one and one half time that rate for guaranteed hours over 40 (29 U.S.C. 207(f)). For example, under respondent's purported plan, the guaranteed payments based on 48 hours a week (Pet. App. 13a; J.A. 18-20, 29) are supposed to reflect 40 hours at a regular rate and 8 hours at one and a half times that rate. Hours worked in excess of the 48-hour guarantee in this case must also be paid at one and a half times to regular rate, under 29 U.S.C. 207(a). See 29 C.F.R. 778.409. /8/ The court found it unnecessary to reach the "other substantial grounds asserted" by the Secretary in support of his agrument that the plan was invalid (Pet. App. 15a n.2). Respondent no longer contests the invalidity of its plan. Not only did the mechanics' hours not fluctuate below 40 hours a week, but respondent's payroll records (J.A. 16-17, 34-61) show that the mechnacis regularly worked more than the 48 hours a week for which they received a guaranteed weekly payment; yet not even for those excess hours were they paid one and a half times their regular rate. For example, beginning in 1983, Ricky Brossman was paid a base rate of $395 a week, which under respondent's payment plan came out to a regular rate of $7.60 per hour (J.A. 25, 41-42). Yet his overtime payments for two weeks when he worked 50 hours, which should have been $11.40 per hour (one and a half times the regular rate), instead totalled $6.71 for two hours, or twice the current minimum wage of $3.35 (ibid.). William Padillas, supposedly being paid a regular rate of $5.67 an hour, received $2.65 for one hour of overtime (J.A. 25-26, 37-38). James Hummel's compensation for four hours of overtime in one 52 hour work week, and five hours of overtime in another 53 hours work week, are calculated at $10.40 and $13.00, respectively, for an overtime rate of $2.60 an hour (J.A. 26-27, 34-36). See also J.A. 22-23, 44-48 (rate of overtime pay for Gerald Sechrist varied though regular rate of pay remained the same); see generally J.A. 34-61 (respondent's payroll records). Neither respondent's office manager-accountant, who prepared the payrolls (J.A. 16), nor its general manager of 16 years, who oversaw all phases of manufacture and sales for respondent (J.A. 28), could explain the payroll discrepancies (J.A. 27, 32). According to the general manager, the method of payment had been in effect before he began working for respondent, and "(i)t just didn't occur" to him to explain in writing to the mechanics how the payment system operated (J.A. 29). Instead, he relied on an oral explanation at the time a mechanic was hired, and then gave a "salary rate" for the mechanic to a payroll clerk who "would know how to handle it" (J.A. 30). The general manager was aware for all of his 16 years in that position that the FLSA exists and that its minimum wage and overtime provisions apply to respondent's business (J.A. 28). /9/ The First Circuit in Secretary of Labor v. Daylight Dairy Products, Inc., 779 F.2d 784 (1985), refused to extend Thurston to the FLSA statute of limitations, reasoning that the double damages provision construed in Thurston is punitive, while the FLSA statute of limitations is not. The court of appeals in this case rejected the First Circuit's analysis on the ground that increasing an employer's risk of liability for a "willful" violation "cannot be explained as anything else but a punitive measure" (Pet. App. 8a). /10/ The Equal Employment Opportunity Commission is the federal agency responsible for enforcing the Equal Pay Act, 29 U.S.C. 206(d), and the ADEA, 29 U.S.C. (& Supp. III) 621 et seq., to both of which the FLSA statute of limitations applies (see note 6, supra). The Commission, in its litigation, has consistently supported the Jiffy June "in the picture" standard as an appropriate construction of the statute of limitations. The Commission has now decided that the standard we propose, under which a violation is willful if the employer acts without a reasonable basis for believing its acts are lawful, appropriately balances employees' interest in having an extra year to claim unlawfully withheld wages and employers' interest in avoiding undue liability for inadvertent violations. The Commission agrees that the Thurston standard should not be transposed into the statute of limitations context. /11/ See also Black's Law Dictionary 1434 (5th ed. 1979) and 94 C.J.S. Willful (1956), for various definitions of "willful." /12/ In addition, the Court indicated (469 U.S. at 127 n.20) that its standard was comparable to the standard adopted in F.X. Messina Constr. Corp. v. Occupational Safety & Health Review Comm'n, 505 F.2d 701 (1st Cir. 1974). The court of appeals in that case, citing Jiffy June (which established the "in the picture" standard, see page 9, supra), required only "a conscious, intentional, deliberate, voluntary decision" to find a "willful violat(ion)" (505 F.2d at 702). /13/ See Berndt v. Kaiser Aluminum & Chem. Sales, Inc., 789 F.2d 252, 260 (3d Cir. 1986) (reading Thurston to require more than inadvertence). See also Dreyer v. Arco Chem. Co., 801 F.2d 651, 656-657 (3d Cir. 1986) (the "willful" standard under the ADEA liquidated damages provision, where employer action "consists of a decision directed at an individual" instead of the adoption of a policy, requires proof of some "outrageous" conduct), cert. denied, No. 86-1062 (Mar. 2, 1987). At least one district court, relying on Dreyer and the court of appeals' decision here, has held that willfulness may require proof of "outrageous" conduct to extend the FLSA statute of limitations to three years. Treese v. Chevron Corp., 666 F. Supp. 76 (W.D. Pa. 1987). The Eleventh Circuit has declined to follow the Third Circuit's restrictive Dreyer formulation. Lindsey v. American Cast Iron Pipe Co., 810 F.2d 1094, 1099-1100 (1987). Other courts of appeals have varied in their approaches to the issue. See Bethea v. Levi Strauss & Co., 827 F.2d 355, 359 (8th Cir. 1987); Furr v. AT & T Technologies, 824 F.2d 1537, 1546-1547 (10th Cir. 1987); Dominic v. Consolidated Edison Co., 822 F.2d 1249, 1256-1257 (2d Cir. 1987); Gilliam v. Armtex, Inc., 820 F.2d 1387, 1390 (4th Cir. 1987); Gilchrist v. Jim Slemons Imports, Inc., 803 F.2d 1488, 1494 (9th Cir. 1986); Powell v. Rockwell Int'l Corp., 788 F.2d 279, 286 (5th Cir. 1986). See also Spanier v. Morrison's Mgmt. Services, Inc., 822 F.2d 975 (11th Cir. 1987) (noting confusion in courts of appeals over the meaning of "willful" in the ADEA context after Thurston). /14/ See Whitfield v. City of Knoxville, 756 F.2d 455, 463-464 (6th Cir. 1985) (employer does not act in "reckless disregard" of ADEA requirements when courts are split on whether a practice violates the law and the employer relies on an ultimately rejected court position). /15/ This case was brought under 29 U.S.C. 217, and hence only back pay is at issue. Liquidated damages are available in some FLSA suits brought under 29 U.S.C. 216(b) and (c), and in ADEA suits where the Thurston standard is met. In such cases, the standard of willfulness under Section 255(a) would affect the amount of such damages as well as the amount of back wage. That fact, however, furnishes no reason to adopt a more restrictive definition of willfulness under Section 255(a). First, among the cases for which the appropriate Section 255(a) standard must be determined are those, like this one, where the only monetary award at stake is the recovery of unlawfully withheld wages. The limitations period also affects the amount of back pay in cases where liquidated damages may be available, and contrary to the Seventh Circuit's view in Walton v. United Consumers Club, Inc., 786 F.2d 303, 310 (1986), employees should not receive less back pay simply because they may also receive another award designed to serve a different function. Indeed, the FLSA context, this Court long ago held that liquidated damages are intended to compensate employees for the delay in recovery of unlawfully withheld wages (Brooklyn Savings Bank v. O'Neil, 324 U.S. 697, 715 (1945)) and for various "damages too obscure and difficult of proof for estimate other than by liquidated damages" (Overnight Motor Transp. Co. v. Missel, 316 U.S. 572, 583-584 (1942)). A restrictive standard under Section 255(a) would thus diminish a second form of compensatory relief. Moreover, in the ADEA context, liquidated damages serve to punish, as this Court held in Thurston, and are available only against employers who are deserving of punishment under the Thurston standard. A restrictive standard should not be adopted for Section 255(a) simply in order to reduce the amount of punitive damages charged to such employers. We also note that, when Congress enacted the present version of Section 255(a) in 1966, liquidated damages could be sought only by employees. Congress did not give the Secretary the right to seek liquidated damages in actions under 29 U.S.C. 216 until 1974. Fair Labor Standards Amendments of 1974, Pub. L. No. 93-259, Section 26, 88 Stat. 73. In addition, the ADEA was not enacted until 1967. /16/ The two-year period was enacted as part of Congress's response to several holdings of this Court that, in Congress's view, had created "wholly unexpected liabilities, immense in amount and retroactive in operation" (Portal-to-Portal Act of 1947, Section 1(a), 29 U.S.C. 251(a)). The purpose of the two-year provision was to protect employers from "potential retroactive liability" imposed by the "varying and extended" state limitations periods that previously had applied to FLSA back wage claims (ibid.). See also Laffey v. Northwest Airlines, Inc., 567 F.2d 429, 459-460 (D.C. Cir. 1976), cert. denied, 434 U.S. 1086 (1978) (Laffey I). /17/ One employer representative described the predicament of an employer who unwittingly violated the Act because, "unbeknowst to him," the city acquired land near his farm and packing plant, thereby depriving him of an exemption dependent on certain mileage and population tests. House Hearings 394. See also id. at 1151 (employer was ignorant of whether a required percentage of customers were "household customers" under the exemption for certain laundries). In other cases, employers blamed technical complications involved in determining which employees were covered and which were exempt (id. at 2050), and ever-changing court rules and regulations, which created great uncertainty (id. at 2059, 2241-2242). /18/ The Senate Committee that held hearings on the Administration's Senate bill (S. 1986, 89th Cong., 1st Sess. (1965)) did not report out a bill. /19/ See, e.g., EEOC v. Central Kansas Medical Center, 705 F.2d 1270, 1274 (10th Cir. 1983) (citations omitted) (employer "'was, or should have been, cognizant of an appreciable possibility that the employees involved were covered by the statutory provisions'"); Donovan v. Carls Drug Co., 703 F.2d 650, 652 (2d Cir. 1983) ("(1) (employers) know that their business is subject to FLSA and (2) their practices do not conform to FLSA requirements"); Donovan v. KFC Nat'l Mgmt., 682 F.2d 603, 605 (6th Cir. 1982) (original quotations marks omitted) ("an employer who knows he may be subject to the Act and proceeds voluntarily to engage in conduct which he knows may violate the Act has done so willfully"); Marshall v. Erin Food Services, Inc., 672 F.2d 229, 231 (1st Cir. 1982) ("the employer knew or had reason to know that the FLSA was applicable to its employment practices"); Marshall v. Union Pac. Motor Freight co., 650 F.2d 1085, 1092-1093 (9th Cir. 1981) (same as EEOC v. Central Kansas Medical Center, supra); Laffey I, 567 F.2d at 461-462 (footnote omitted) (employer's violation is willful "at the very least * * * when he is cognizant of an appreciable possibility that he may be subject to the statutory requirements and fails to take steps reasonably calculated to resolve the doubt"); Coleman v. Jiffy June Farms, Inc., 458 F.2d at 1142 ("the employer knew or suspected that his actions might violate the FLSA. Stated most simply, we think the test should be: Did the employer know the FLSA was in the picture?"). /20/ In Employees of the Dep't of Public Health & Welfare v. Department of Public Health & Welfare, 411 U.S. 279 (1973), this Court held that the FLSA had not provided for suit by state employees against their state employers. Congress overturned that result in the 1974 amendments. In new Subsection (d), it extended the statute of limitations to allow six additional months from the effective date of the 1974 amendments for suit by state employees who had originally brought suit prior to this Court's decision. /21/ Section 216(a)'s restriction of its criminal sanction to willful violations does not suggest that the FLSA statute of limitations requires a reckless disregard standard. First, as a criminal provision, section 216(a) serves a wholly different purpose from that served by the FLSA statute of limitations: it is specifically designed to punish culpable conduct. Moreover, Section 216(a) and Section 255(a) are neven both at issue in the same case, because a criminal prosecution under Section 216(a) is subject to the general federal criminal five-year statute of limitations, 18 U.S.C. 3282, not to Section 255(a). Further, the provisions were enacted by different Congresses (Section 255(a) by the 89th, Section 216(a) by the 75th); and in the legislative history of the enactment of the two-tier scheme of Section 255(a), there is no reference to the criminal prohibition of Section 216(a). Finally, willfulness under Section 216(a) has long been understood, and was understood in 1966, to require simply that "the act was deliberate, voluntary and intentional as distinguished from one committed through inadvertence, accidentally or by ordinary negligence" (Nabob Oil Co. v. United States, 190 F.2d at 480 (footnote omitted); see United States v. Heilig, 137 F. Supp. 462, 466 (D. Md. 1956)), a standard that does not clearly require reckless disregard and, indeed, has apparently even been construed to be equivalent to the Jiffy June standard. See F.X. Messina Constr. Corp. v. Occupational Safety & Health Review Comm'n, 505 F.2d at 702, cited in Thurston, 469 U.S. at 127 n.20. See note 12, supra. Of course, a single term may have different meanings even in different parts of the same statute, let alone in different statutes, if the contexts, purposes, and circumstances are different. See, e.g., Puerto Rico v. Shell Co., 302 U.S. 253, 258-259 (1937); Helvering v. Stockholms Enskilda Bank, 293 U.S. 84, 87-88 (1934); Donovan v. Bel-Loc Diner, Inc., 780 F.2d 1113, 1117 (4th Cir. 1985); Secretary of Labor v. Daylight Dairy Products, Inc., 779 F.2d 784, 789 (1st Cir. 1985). /22/ An additional consideration is that employees may not be aware or sufficiently confident of their rights until the Department of Labor investigates and uncovers violations; and those who depend on their employers for a livelihood and fear retaliation for protesting employer pay practices, or who make only the minimum wage and lack bargaining power, may be very reluctant to pursue rights to which they suspect they are entitled. See House Hearings 718-719; cf. Mitchell v. Robert DeMario Jewelry, Inc., 361 U.S. 288, 292-293 (1960). /23/ See Crenshaw v. Quarles Drilling Corp., 798 F.2d 1345, 1350 & n.6 (10th Cir. 1986) (citation omitted) ("violation is willful if 'the employer knew that the Act was "in the picture" and was aware of the Act's possible application to his employees'"); Donovan v. Bel-Loc Diner, Inc., 780 F.2d 1113, 1117 (4th Cir. 1985) (violation is willful when employer knew FLSA was "'in the picture' and, thus, might govern the employer's conduct")' Secretary of Labor v. Daylight Dairy Products, Inc., 779 F.2d at 789 (citation omitted) ("'the employer knew or had reason to know that the FLSA was applicable to its employment practices'"); Brock v. Georgia Southwestern College, 765 F.2d 1026, 1039 (11th Cir. 1985) (citation omitted) (employer "knew that the Act was 'in the picture' regardless of the defendant's good faith"); Donovan v. Carls Drug Co., 703 F.2d at 652 ("(1) (employers) know that their business is subject to FLSA and (2) their practices do not conform to FLSA requirements"). /24/ For the standards adopted by the Eighth and Sixth Circuits, see Nolting v. Yellow Freight System, Inc., 799 F.2d 1192, 1197-1198 (8th Cir. 1986) (employer "knew or suspected" that its practices violated statutory requirements), and Donovan v. KFC Nat'l Mgt. Co., 682 F.2d at 605 (citation omitted) ("'an employer who knows he may be subject to the (FLSA) and proceeds voluntarily to engage in conduct which he knows may violate the (FLSA)'"). In Hickman v. United States, 10 Cl. Ct. 550, 554 (1986), the Claims Court states that the appreciable possibility standard made sense for private employers but not for the federal government as an employer. An FLSA violation by the government, the court held, is non-willful whenever there is significant uncertainty about the FLSA's application. /25/ It is nonetheless true that some courts applying standards based on Jiffy June have found violations nonwillful. see, e.g., Marshall v. Root's Restaurant, Inc., 667 F.2d 559, 561 (6th Cir. 1982) (citing Marshall v. Union Pac. Motor Freight Co., 650 F.2d 1085, 1092-1093 (9th Cir. 1981)); EEOC v. Governor Mifflin Sch. Dist., 623 F. Supp. 734, 738 (E.D. Pa. 1985); Donovan v. I & J, Inc., 567 F. Supp. 93, 107 (D.N.M. 1983); Marshall v. Molly Murphy's, Inc., 26 Wage & Hour Cas. (BNA) 787, 790 (W.D. Okla. 1980). Moreover, the proportion of such employer victories in court may be lower than the proportion of non-willful violations as a whole, because most FLSA violations do not result in litigation and voluntary settlement is more likely with inadvertent violations than with more knowledgeable violations (cf. House Hearings 54 (testimony of Secretary of Labor Wirtz) (most inadvertent violations are settled)). Of the 69,249 minimum wage and overtime investigations conducted by the Department of Labor in fiscal year 1987, 52,824 cases involved violations, 47,887 of the violators agreed to pay some amount of back wages, 1217 cases were referred to the Solicitor of Labor for possible litigation, and an even smaller number were actually litigated. /26/ It may be, as we have noted (see pages 19-20, supra), that the Thurston standard itself might allow a finding of willfulness when an employer fails to inquire further once aware of an appreciable possibility that its business is governed by the FLSA. See Brock v. Wilamowsky, No. 87-6026 (2d Cir. Oct. 30, 1987), slip op. 18-19; Glenn v. General Motors Corp., 658 F. Supp. 918, 927 (N.D. Ala. 1986); EEOC v. Westinghouse Elec. Corp., 646 F. Supp. 555, 563 (D.N.J. 1986) (citations omitted), appeal pending, No. 87-5174 (3d Cir. argued Oct. 20, 1987). If the failure to investigate must also be reckless, however, the Thurston standard might not be met. See Gilliam v. Armtex, Inc., 820 F.2d at 1390. In any event, we do not think Congress intended the amount of an employee's FLSA back pay to depend on whether the employer's failure to investigate its legal responsibilities may be excused as something short of reckless. /27/ If an employer seeks to rely on attorney advice as a defense, it must be held to have waived any attorney-client privilege it might otherwise have regarding such advice. See, e.g., Hunt v. Blackburn, 128 U.S. 464, 470 (1888); In re continental Illinois Securities Litigation, 732 F.2d 1302, 1314-1315 & n.20 (7th Cir. 1984); United States v. Woodall, 438 F.2d 1317, 1324 (5th Cir. 1970) (en banc), cert. denied, 403 U.S. 933 (1971). /28/ The Belo plan exception also requires that any fluctuation must result from the nature of an employee's duties (29 U.S.C. 207(f)), which means that "neither (the employee) nor his employer can either control or anticipate with any degree of certainty the number of hours he must work from week to week" (29 C.F.R. 778.405). Accordingly, respondent had no sound basis for seeking to prove significant fluctuation of work weeks below 40 hours based almost entirely on weeks that resulted in less than 40 hours of work only because of holidays or vacation days or mechanics' performance of some other kind of work (Pet. App. 14a). There are, in addition, unexplained inconsistencies in respondent's payroll records and wage payments, which call into question whether respondent was even following its purported pay plan (see page 8, supra).