Key Points

  • The Sixth Circuit affirmed dismissal of a nurse's FLSA retaliation claim based on her employer filing bonus-repayment counterclaims against her.
  • The court held that Wedding failed to plausibly allege the counterclaims were objectively baseless, one of two prongs required under the sham-litigation test the parties assumed applies.
  • Judge Murphy's concurrence questioned whether the two-part sham test from antitrust and NLRA cases should extend to the FLSA at all, calling the answer 'debatable.'
  • The panel corrected the district court's error in treating McDonnell Douglas as a pleading standard rather than an evidentiary framework.
  • The Supreme Court has left open whether reasonably-based but retaliatory counterclaims or compulsory counterclaims can violate the FLSA's anti-retaliation provision.

The Sixth Circuit on Friday affirmed dismissal of a Kentucky nurse's lawsuit alleging that her former employer retaliated against her under the Fair Labor Standards Act by filing counterclaims to claw back a sign-on bonus, ruling that she failed to show the employer's claims lacked a reasonable basis in fact or law.

Paulette Wedding had sued Madisonville Health and Rehabilitation LLC in 2024, alleging the nursing home violated the FLSA by excluding her sign-on bonus from overtime pay calculations. When the company responded with counterclaims asserting Wedding owed $5,250 in bonus repayment because she left before completing a year of employment, Wedding filed a second suit arguing those counterclaims were unlawful retaliation.

Judge Jane B. Stranch, writing for a unanimous panel that included Judges Bush and Murphy, held that Wedding's retaliation claims failed at the pleading stage. The court accepted the parties' shared assumption that the Supreme Court's "sham litigation" test governs such claims, requiring a plaintiff to show both that the challenged legal action was objectively baseless and subjectively motivated by an unlawful purpose.

Wedding did not meet the first prong, the court found. Although she alleged she never signed a written repayment agreement, her own complaint in the underlying wage suit conceded that Madisonville Health had promised her a $7,000 bonus payable in stages "if she worked at the company long enough for each stage." Those concessions, combined with Kentucky law permitting implied contracts, made it "at least 'objectively plausible'" that a repayment term applied, Judge Stranch wrote.

The timing of Wedding's departure also left a genuine factual dispute. Wedding alleged she was suspended on February 11, 2024, and told of her termination on February 14 — exactly one year after her start date. But Madisonville Health's counterclaims alleged she was terminated on February 12, two days before the anniversary. "The facts surrounding Wedding's suspension and termination could support an inference that Wedding did not remain employed for a full year, breaching the alleged contract," the opinion stated.

Wedding fared no better attacking the employer's unjust enrichment theory. She argued no Kentucky court had ever allowed an employer to recover a bonus under such circumstances. But the Sixth Circuit noted that courts in other jurisdictions have permitted unjust enrichment claims against employees who received bonuses conditioned on remaining employed for a set period and then left early. "Wedding's factual allegations therefore have failed to show that there is no realistic chance that Madisonville Health's legal theory might be adopted," Judge Stranch wrote.

In a separate concurrence, Judge Murphy questioned whether the two-part sham test belongs in FLSA retaliation cases at all. He noted that the Supreme Court developed the test in antitrust and National Labor Relations Act contexts to avoid First Amendment concerns about penalizing access to the courts. But he observed that the FLSA's text — prohibiting employers from discriminating against employees "because" they filed a complaint — does not obviously require proving the employer's lawsuit was objectively baseless.

"Does the FLSA's anti-retaliation provision adopt this two-part test? The answer may well be debatable," Judge Murphy wrote. He traced the test's origins to the Supreme Court's 1983 decision in Bill Johnson's Restaurants Inc. v. NLRB, which construed the NLRA's similar retaliation provision. But he suggested that decision rested on an "outdated" approach to constitutional avoidance that barely examined the statute's text.

Judge Murphy also flagged two questions the Supreme Court has left open: whether the First Amendment protects a counterclaim that has a reasonable basis but would not have been filed "but for a motive to impose the costs of the litigation process" in retaliation for protected activity, and whether a compulsory counterclaim under Federal Rule of Civil Procedure 13(a) can ever be retaliatory under the FLSA. The panel declined to address either issue.

The court also corrected the district court's application of the McDonnell Douglas burden-shifting framework. The lower court had suggested Wedding needed to plead a prima facie case of retaliation to survive dismissal. But the Sixth Circuit, citing its recent decision in Washington v. First National Bank of Pennsylvania, clarified that McDonnell Douglas establishes an evidentiary standard for trial, not a pleading requirement. Still, the error did not change the outcome.

The Kentucky Wages and Hours Act claims failed for the same reasons, the court held. The parties had briefed only the FLSA standards and did not argue the state law required a different result.

The underlying wage suit and Madisonville Health's counterclaims remain pending in the Western District of Kentucky.