Employees sued for violating severance agreements

Where former Capital One employees agreed in their severance agreements to not file a collective action, but then did so, Capital One’s breach of contract counterclaim may proceed because it plausibly alleged it suffered damages from having to defend the collective action claims.

Background

In these three consolidated cases, three former Capital One employees assert that Capital One violated the Fair Labor Standards Act, or FLSA, by failing to pay them overtime. The three employees initially filed collective actions. Capital One, in turn, asserts in its counterclaims that the former employees breached binding severance agreements when they pursued collective action claims against Capital One, after agreeing to not do so in their severance agreements.

After the court held the collective action waiver was valid and enforceable under federal law, it granted the former employees’ motions to sever their collective actions into individual actions. Each former employee then timely filed their respective amended complaints, asserting individual claims for relief under the FLSA.

Capital One answered and refiled their counterclaims, again asserting that by having previously joined a collective action against Capital One, the former employees violated the terms of their severance agreements. The former employees have moved to dismiss the counterclaims.

Specific performance

Capital One’s claim for specific performance in Count One falters for two reasons. First, because Capital One seeks monetary damages for the same injury in its breach of contract claim, it cannot simultaneously maintain a claim for specific performance. Second, because the former employees are no longer engaged in a collective action against Capital One, Capital One cannot show that its requested relief – a court order preventing the former employees from asserting a collective action against Capital One – is necessary to make Capital One “whole.”

Breach of contract

Drawing all reasonable inferences in Capital One’s favor, Capital One plausibly pleads all three prongs of a breach of contract claim in Count Two. First, Capital One plausibly pleads that the former employees owed “a legally enforceable obligation” to Capital One through the severance agreements. Second, Capital One plausibly states that the former employees breached their obligation when they participated in a collective action against Capital One contrary to the terms of their severance agreements. Third, Capital One plausibly asserts that it “suffered damages as a result of [the former employees’] breaches of the Agreement by, among other things, expending money and resources responding to and defending against [the former employees’] collective and multiparty claims.”

The former employees contend that the filing of their amended complaints rendered Capital One’s counterclaims moot. However, Capital One’s counterclaim allegations rely on the independent legal consequence of the former employees’ decision to join in a collective action through their initial complaints. Put another way, Capital One’s counterclaims do not rely on the factual allegations in the former employees’ superseded complaints but on the fact that those complaints were filed.

As a result, the counterclaims do not rely on the factual allegations in the former employees’ initial complaints and are not mooted by the filing of amended complaints. Rather, the former employees allegedly breached their severance agreements when they joined the collective action as reflected in their initial claims.

Unjust enrichment

The court will grant the motions to dismiss Capital One’s claims for unjust enrichment. Because an express contract exists between Capital One and the former employees concerning the subject matter of Capital One’s counterclaims, the contract stands before the court and no party disputes the authenticity or validity of the contract, Capital One cannot bring an equitable claim for unjust enrichment.

Plaintiffs’ motions to dismiss counterclaims granted in part, denied in part.

Cortez-Melton v. Capital One Financial Corp., Case Nos. 3:19-cv-127, 3:20-cv-404, 3:20-cv-415, Feb. 26, 2021. EDVA at Richmond (Lauck). VLW 021-3-090. 22 pp.