IN THE UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT No. 02-1361 JANE DOE, vs. GOLDSTEIN'S DELI; DANIEL DIEFFENBACH; CHARLES WELKI Jane Doe, Appellant On Appeal from the United States District Court for the Middle District of Pennsylvania BRIEF OF THE EQUAL EMPLOYMENT OPPORTUNITY COMMISSION IN SUPPORT OF THE APPELLANT AND REVERSAL NICHOLAS M. INZEO Acting Deputy General Counsel PHILIP B. SKLOVER Associate General Counsel LORRAINE C. DAVIS Assistant General Counsel ROBERT J. GREGORY Senior Attorney EQUAL EMPLOYMENT OPPORTUNITY COMMISSION 1801 L Street, N.W. Washington, D.C. 20507 202-663-4059 STATEMENT OF INTEREST The Equal Employment Opportunity Commission (“Commission”) is the agency entrusted with the enforcement of Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq. (“Title VII”). In this Title VII case, the district court dismissed the plaintiff's case on coverage grounds, holding that the plaintiff failed to prove that the defendant, Goldstein's Deli (“Goldstein's”), employed “fifteen or more employees for each working day in each of twenty or more calendar weeks in the current or preceding calendar year,” as required to establish coverage under Title VII. See 42 U.S.C. §2000e(b). The court reached this conclusion despite the defendant's failure to produce complete payroll records for the period in question. The district court acknowledged that the record was “muddled and [that] perhaps there were many records that if kept and made available would have –- may possibly have supported plaintiff's case.” Transcript (Dec. 26, 2001) at 7-8. The court, however, rather than drawing an adverse inference against the defendant for its failure to produce the very payroll records that could have made the plaintiff's case, faulted the plaintiff for a failure of proof on the issue. This, in our view, was legal error. The court should have applied the adverse inference rule and drawn the inference, from the defendant's failure to produce the payroll records, that those records would have established the requisite number of employees for purposes of Title VII coverage. To assist the Court in resolving this important legal question, the Commission, pursuant to F.R.A.P. 29(a), offers its views as amicus curiae. STATEMENT OF THE ISSUE 1. Whether the district court should have applied the adverse inference rule to hold that Goldstein's is a covered employer under Title VII. STATEMENT OF THE CASE Goldstein's defended this Title VII lawsuit by arguing that it did not have the requisite number of employees to fall within Title VII coverage. The district court conducted evidentiary hearings on the issue. The court took testimony from a number of witnesses, who offered sometimes conflicting accounts of the individuals actually employed by Goldstein's during the relevant time-frame. The evidentiary quagmire resulted from Goldstein's inability to produce complete payroll records for the period in question. In ruling in Goldstein's favor, the district court deducted several weeks from the number of qualifying weeks, concluding that “of the 31 weeks at issue here, the maximum number of weeks during which the defendant[] had 15 or more employees amounts to 13 which is below the required number of 20 weeks.” Memorandum and Order (Jan. 2, 2002) at 2. In several of the weeks disqualified by the court, the number of employees added up to 14, just under the 15 required for coverage. See Transcript (Dec. 26, 2001) at 2-3. The court noted that “the plaintiff did the best that could be done with what was available,” but found the plaintiff's proof to be “entirely too nebulous, entirely too vague, and entirely too imprecise for me to make a comfortable finding on those matters on which I make findings contrary to the plaintiff's position.” Id. at 8. The court admonished “the defense” not to take “any great comfort” in the court's finding that the requisite number of “15 employees for 20 weeks has not been established,” stressing that the “record is –- is muddled and perhaps there were many records that if kept and made available would have –- may possibly have supported the plaintiff's case, but I can't say it would have. There's –- it just created a blurred evidentiary fabric. Id. at 7-8. The court further described as “reliable” testimony that Goldstein's sought to pay employees “under the table,” by cash rather than by check.<1> The court believed this to be “an issue for another forum, whether there were other violations.” Id. at 7. ARGUMENT THE DISTRICT COURT SHOULD HAVE APPLIED THE ADVERSE INFERENCE RULE TO HOLD THAT GOLDSTEIN'S IS A COVERED EMPLOYER UNDER TITLE VII. Under The Adverse Inference Rule, Where A Party Fails To Produce Records That The Party Is Required By Law To Maintain, Or Where It Fails To Produce Records Under Circumstances That Are Otherwise Suggestive Of Fraud Or A Desire To Suppress The Truth, It Is Proper To Draw The Inference That The Absent Records Would Support The Position Of The Opposing Party On The Issue In Dispute Title VII defines the term “employer” to mean “a person engaged in an industry affecting commerce who has fifteen or more employees for each working day in each of twenty or more calendar weeks in the current or preceding calendar year.” 42 U.S.C.§ 2000e(b). In this case, the district court ruled that the plaintiff's proof fell short of establishing the 15-employee minimum for a period of 20 calendar weeks. Our amicus brief does not address the specifics of the competing proofs on that issue. Instead, our brief makes the legal argument that the district court should have applied the adverse inference rule to find statutory coverage in this case. The adverse inference rule is derived from the longstanding principle that the “unexplained failure or refusal of a party to judicial proceedings to produce evidence that would tend to throw light on the issues authorizes, under certain circumstances, an inference or presumption unfavorable to that party.” Gumbs v. Int'l Harvester, 718 F.2d 88 (3d Cir. 1983). The rule plainly applies when a party fails to produce records that the party is required by law to maintain. See Zimmerman v. Assocs. First-Capital Corp., 251 F.2d 376, 383 (2d Cir. 2001). The rule also applies in circumstances in which the failure to produce records is otherwise suggestive of “fraud” or a “desire to suppress the truth.” Gumbs, 718 F.3d at 96. Of course, the rule does not apply where the missing records are not relevant to the claim of the party seeking the inference. Nor does the rule apply where the “circumstances indicate that the document or article in question has been lost or accidentally destroyed, or where the failure to produce it is otherwise properly accounted for.” Gumbs, 718 F.2d at 96. Where, however, the circumstances suggest “an actual suppression or withholding of the evidence,” as when the employer is required by law to maintain the records and fails to produce them, and where the records would cast light on an issue in dispute in a case, the law gives the benefit of the doubt to the party in need of the missing records, not the party unable or unwilling to produce them. The Adverse Inference Rule Applies In This Case This is a strong case for application of the adverse inference rule. To begin with, employers are required by law to maintain payroll records. Under the Fair Labor Standards Act (“FLSA”), “[e]ach employer is required to “preserve for at least 3 years . . . [f]rom the last date of entry, all payroll or other records containing the employee information and data required under any of the applicable sections of this part.” 29 C.F.R. §516.5(a). The “employee information and data required under any of the applicable sections of this part” include “[n]ame in full, as used for Social Security recordkeeping purposes,” “[h]ome address, including zip code, “[d]ate of birth, if under 19,” “[s]ex and occupation in which employed,” [t]ime of day and day of week on which the employee's workweek begins,” “[r]egular hourly rate of pay for any workweek in which overtime compensation is due,” “[h]ours worked each workday and total hours worked each workweek,” “[t]otal daily or weekly straight-time earnings or wages due for hours worked during the workday or workweek,” “[t]otal additions to or deductions from wages paid each pay period,” ‘[t]otal wages paid each pay period,” and “[d]ate of payment and the pay period covered by payment.” 29 C.F.R. § 516.2(a); accord 29 C.F.R. §1620.32(a) (“Employers having employees subject to the [Equal Pay Act] are required to keep records in accordance with U.S. Department of Labor regulations found at 29 CFR part 516). The hearings on the coverage issue in this case were held in November and December of 2001. The work period being examined for coverage purposes was a period dating back to June 1999, well within the 3-year regulatory period for preserving payroll records under the FLSA. There is no explanation for Goldstein's failure to produce these records, which are required to be maintained and preserved for a period of 3 years.<2> This itself supports application of the adverse inference rule. In this case, moreover, the circumstances are suggestive of “fraud” or a “desire to suppress the truth.” Gumbs, 718 F.3d at 96. There was “reliable” testimony that Goldstein's wanted to pay employees “under the table.” Transcript (Dec. 26, 2001) at 7. Indeed, Goldstein's owner admitted that the checkbook register maintained by Goldstein's did not fully account for all of Goldstein's employees. Although the district court dismissed this proof as raising “an issue for another forum, whether there were other violations,” id., the evidence supports an inference that Goldstein's did not maintain adequate records to begin with because it was trying to conceal the irregularities in its hiring and payroll practices, which irregularities had the effect of deflating the number of individuals actually employed by Goldstein's. This does not appear to be a case where records were inadvertently lost or innocently destroyed as a “‘matter of routine with no fraudulent intent.'” Gumbs, 718 F.2d at 96. Instead, this is a case where the employer's own defective records support an inference that a proper accounting of employees would yield the statutory minimum.<3> See Moore v. Denson, 1996 WL 327990, *4 & ns. 6-7 (N.D. Ill. 1996) (faulting the defendant for failing to produce “daily time sheets” or “payroll records” in support of its no coverage argument, and drawing “several inferences” in the plaintiff's favor on the coverage issue due to the “incomplete data” supplied by the defendant); see also Gaugaix v. Laboratoires Esthederm USA, Inc,, 2001 WL 11069, *1 (S.D.N.Y. Jan. 4, 2001) (defendant not entitled to summary judgment on coverage issue until it produced payroll records “conclusively” showing that it did not employ “more than fifteen people”); Albrecht v. Rich, 2000 WL 1061225, *3 (D. Ore. 2000) (refusing to dismiss case on coverage grounds where the defendant “submitted no payroll records or other records establishing the identity and/or number of employees employed by [the defendant] during the appropriate two year period). Further supporting the view that Goldstein's poor recordkeeping can be held against it in this context is the Supreme Court's decision in Walters v. Metropolitan Educ. Enterprises, Inc., 519 U.S. 202 (1997). In that case, the Court adopted the “payroll method” for counting employees in Title VII cases. That method focuses on “whether the employer has an employment relationship with the individual on the day in question,” a fact that “is most readily demonstrated by the individual's appearance on the employer's payroll.” Id. at 206. Plainly, the employer's maintenance and production of accurate payroll records is critical to a determination of coverage under the “payroll method” of counting employees. As the Supreme Court observed in Walters, the “payroll method” prevents the “coverage determination” from turning into “an incredibly complex and expensive factual inquiry.” Id. at 210. This is true, however, only if the employer is able to produce written payroll records for the period in question. Absent such records, the proof, based on the personal recollections of managers and employees, is likely to be “entirely too nebulous, entirely too vague, and entirely too imprecise.” Transcript (Dec. 26, 2001) at 8. The employer is uniquely in control of the payroll records that are vital to a determination of coverage under the payroll method of counting employees. An employer that moves to dismiss a case on coverage grounds (too few employees) should bear the initial burden of producing the relevant payroll records for the time period in question.<4> See 29 Am. Jur. 2d Evidence § 161 (“Where information necessary to prove an issue is peculiarly or exclusively within the possession of one party, courts sometimes reason that convenience and fairness justify placing the burdens of pleading and [producing] those facts upon that party”).<5> The district court acknowledged that “there were many records that if kept and made available would have –- may possibly have supported the plaintiff's case.” Transcript (Dec. 26, 2001) at 7-8. The court, however, faulted the plaintiff for a failure of proof. The court should have faulted Goldstein's for its failure to produce the records and drawn the adverse inference that the records would have established the requisite number of employees for coverage purposes. Under these circumstances, the employer is not entitled to the benefit of the doubt; the plaintiff is. CONCLUSION The district court should have applied the adverse inference rule to hold that Goldstein's is a covered employer under Title VII. Respectfully Submitted, NICHOLAS M. INZEO Deputy Acting General Counsel PHILIP B. SKLOVER Associate General Counsel LORRAINE C. DAVIS Assistant General Counsel ROBERT J. GREGORY Senior Attorney EQUAL EMPLOYMENT OPPORTUNITY COMMISSION 1801 L Street, N.W. Washington, D.C. 20507 202-663-4059 July 16, 2002 CERTIFICATE OF SERVICE I, Robert J. Gregory, hereby certify that, on this 16th day of July, 2002, two copies of the attached brief were sent by first-class mail, postage prepaid, to each of the following counsel of record: Cynthia L. Pollick The Employment Law Firm Greater Pittston Professional Center 126 South Main Street Suite 201 Pittston, PA 18640 Kimberly D. Borland Borland & Borland 69 Public Square 11th Floor Wilkes-Barre, PA 18701 1 Goldstein's owner, Daniel Dieffenbach, testified that the company did not keep documents to “show how much each person -- how many hours each person worked.” Appendix 126. Instead, the company maintained “checkbook registers,” which purported to show the checks paid to employees on Goldstein's payroll. Dieffenbach admitted that these registers did not fully account for all of the company's employees. Id. at 127-29. 2 Goldstein's might have an argument that it is not subject to the FLSA's recordkeeping requirements. Those requirements, however, extend to “[e]very employer subject to any provision of [the Act] or of an order issued under [the Act].” 29 U.S.C. §211(c). The term “employer,” in the FLSA, reaches quite broadly, see 29 U.S.C. § 203(d) (“Employer includes any person acting directly or indirectly in the interest of an employer in relation to an employee . . .”), as do the minimum wage and overtime provisions of that Act. See 29 C.F.R. § 206 [minimum wage] (requiring “every employer [to pay a minimum wage] to each of his employees who in any workweek is engaged in commerce or the production of goods for commerce, or is employed in an enterprise engaged in commerce or in the production of goods for commerce”); see also Tony and Susan Alamo Foundation v. Secretary of Labor, 471 U.S. 290 (1985) (stressing that the Court has “consistently construed the FLSA ‘liberally to apply to the furthest reaches consistent with congressional direction'” in recognition of the fact “that broad coverage is essential to accomplish the goal of outlawing from interstate commerce goods produced under conditions that fall below minimum standards of decency”). 3 We recognize that, in the typical case applying the adverse inference rule, an inference is drawn against a party for its failure to produce records that it had in fact maintained (at one point). There is no reason, however, not to apply the rule in a case in which a party does not maintain the records in the first instance under circumstances that suggest an intent to suppress the truth. Certainly, where the records actually produced by a party are shown to be inaccurate or incomplete, and these records provide the only real basis for testing the truth of the issue in dispute, it is fair to infer that, if accurate or complete records had been kept, they would support the other party's position on that issue. 4 This is not to say that Title VII itself requires employers to maintain “payroll records” as such. Where, however, an employer moves to dismiss a Title VII case on coverage grounds, it should be able to produce accurate records of some kind, showing the individuals who were on the employer's payroll during the relevant time-frame. This is not an onerous burden for the employer, who has an interest, if not a legal duty, in keeping close track of the individuals who are in its employ. 5 This is not inconsistent with the view that the burden of “proof” (persuasion) on the coverage issue remains at all times on the plaintiff. See 2 McCORMICK ON EVIDENCE § 337, at 415 (1999) (“although the burden of persuasion is assigned only once, . . . the initial allocation of the burden of producing evidence may not always be final;” the “shifting nature of that burden may cause both parties to have the burden with regard to the same issue at different points in the trial.”)