Wage and hour cases are showing some interesting trends. NERA issued a report on November 20, stating that the number of settlements in wage and hour cases in federal and state courts and the aggregate settlement amount in 2013 decreased since 2012, but the median settlement amount has increased. Some cases I’ve seen recently illustrate this trend. For example, recently a California car wash company plead no contest to claims including failure pay minimum wages and failure to provide required meal and rest periods. (People v. Wilshire West Car Wash LLC, Cal. Super. Ct., No. 3WA20320, plea entered 11/13/13). The parties reached a plea agreement to provide full back pay to 75 former and current employees for the three-year period of $656,547. The complaint alleged several significant claims: that the car wash altered time records to make it appear that workers had worked fewer hours; created false time records to give the appearance that employees had taken meal breaks when they were actually still working; forced employees to pay a regular fee for cable television when they were not even allowed to watch tv while working; forced employees to pay a fee for towel laundering; threatened, harassed and punished employees who questioned the defendants’ unlawful behavior; and failed to give workers the required rest and meal breaks.
Employers should be mindful that penalties for failing violating state and federal wage and hours laws are significant, and can be detrimental for an employer’s business.
Of late, there have been some favorable decisions for employers on FLSA class action pleading issues. Now, a losing plaintiff is asking the US Supreme Court to reverse this trend and rule that her action should proceed, notwithstanding that there exists a lack of specific factual details. The plaintiff contends that the high Court should resolve the split in the Circuits on this matter. The case is entitled Dejesus v. HF Management Services.
The employee wants the Justices to reverse the Second Circuit. That Court held that the fact that she did not carefully estimate her hours or submit different/other factual proof to her otherwise naked allegation that she worked more than 40 hours in some weeks was fatal to her case. The Cert petition contends that this position is contrary to that taken by other Circuits.
Plaintiff’s counsel stated that “as the Second Circuit itself noted in the Dejesus opinion, the federal courts across the country are divided on the issue of FLSA pleading standards — especially after Twombly and Iqbal.” The lawyer therefore urged the Court to take the case, contending that it is a perfect test case because it was a single plaintiff, rather than a class, action. The lawyer acknowledged that the issues in those cases are far murkier for individual plaintiffs.
The company filed a motion to dismiss which was granted by the District Court. The employee appealed to the Second Circuit. That Court found, contrary to the lower court, that the worker was an “employee” under the Fair Labor Standards Act but nevertheless dismissed the suit. The Court noted that the plaintiff must not only make a conceivable case, but the allegations must also be “plausible.” In other words, a plaintiff cannot merely rehash and parrot the general language of the law, but must allege specifics.
The Second Circuit was not asking for Einstein-like precision. In its opinion, the Court observed that “while this court has not required plaintiffs to keep careful records and plead their hours with mathematical precision, we have recognized that it is employees’ memory and experience that lead them to claim in federal court that they have been denied overtime in violation of the FLSA in the first place. Our standard requires that plaintiffs draw on those resources in providing complaints with sufficiently developed factual allegations.”
I hope the Court takes it, because I believe that plaintiffs should be compelled to claim actual numbers. In counseling clients, it is my experience that employees who have been shorted out of one hour know exactly how much they are missing. Employees who claim they have been often/routinely shorted on overtime should have an idea as to exactly how much they have been denied, if it’s really happening “every week.”
About a year ago, Mark blogged about a tip pool case involving Starbucks where the tip credit (allowing employers to pay a sub-minimum wage) was destroyed when “improper” people (i.e. managers) shared tips along with rank-and-file employees. Mark explained that the liability in these cases can be astronomical because the employer has to pay the difference between the tip credit wage, usually $2.13 per hour and the minimum wage ($7.25 under federal law). Last year, the First Circuit ordered Starbucks to pay class action members $14.1 million in damages over tips.
Just 4 days ago, the Second Circuit held that allowing Starbucks shift supervisors to share in a tip pool does not violate New York law, despite only limited managerial responsibilities, because their primary duties of serving customers are the same as those of baristas.
The Second Circuit opinion concluded that Section 196-d of the New York Labor Law does not automatically preclude Starbucks shift supervisors from sharing in tip pools solely because they perform limited supervisory responsibilities. Based on this interpretation, the court decided that “the limited nature of these supervisory duties, considered together with the shift supervisors’ ‘principal’ responsibilities to provide ‘personal service to patrons,’ cannot admit a finding of the ‘meaningful or significant authority or control over subordinates’ contemplated by § 196-d.”
The court agreed that shift supervisors devoted a majority of their time to the same tasks as baristas and were responsible primarily for serving customers. It also found that shift supervisors performed some managerial duties, such as giving feedback to baristas about their performance and during shifts assigning baristas to particular positions. The Second Circuit held, however, that “these supervisory responsibilities are limited.”
The takeaway for New York employers is that now under the New York Labor Law, employees with limited managerial capacity can participate in tip-splitting arrangements but not when they have “meaningful or significant authority or control” over other employees.
The case is Barenboim v. Starbucks Corp., 2013 BL 325303, 2d Cir., No. 10-4912, unpublished opinion 11/21/13.
Under the FLSA, bonuses are excludable from the regular rate only if the employer can affirmatively demonstrate that the bonus fits into a specific statutory exclusion. In order for a bonus payment to be excluded it must be discretionary, which requires that the bonus meet all of the following requirements:
- The employer must retain discretion as to whether the payment will be made;
- The employer must retain discretion as to the amount of the payment;
- The employer must retain discretion as to the payment of the bonus until near the end of the period which it covers; and
- The bonus must not be paid pursuant to any prior contract, agreement or promise causing the employee to expect such bonus payments.
Under this test, bonuses that are announced to employees to induce them to work more steadily, rapidly or efficiently, or to remain with the employer, must be included in compensation. Similarly, bonuses which are intended to reward specific behavior, such as attendance bonuses, individual or group productivity bonuses, bonuses for quality and accuracy of work, bonuses conditioned upon continued employment, or bonuses “promised to employees upon hiring” must be included as compensation.
A bonus paid pursuant to any prior “contract, agreement or promise” is not excluded. Bonuses that are not discretionary must be totaled in with other earnings and used to determine the hourly rate on which overtime is based.
For example, if a company provides a plan whereby employees will share monies in the event that company performance reaches certain goals, that bonus income will affect the regular rate/overtime computation for non-exempt employees. Such a Plan does not provide the requisite discretion to meet the regulatory requirements. There is no explicit reservation of discretion concerning the giving of the bonus.
Rather, it is contingent upon the level of Company performance and the level of individual performance. The Company performance contingency relates to sales and expenses; the employee performance contingency relates to an objective/subjective assessment of performance. Under the FLSA regulatory framework, such contingencies do not establish the requisite discretion to permit exclusion from the computation of the regular rate for overtime purposes.
This may not seem like a big deal, but if the DOL uncovers this relatively minor violation (depending on the amounts involved), it may be more inclined to dig deeper into the employer’s compensation practices and possibly find other more significant violations that were lurking beneath the surface. If the employer, however, builds into the bonus program the retention of some element of discretion, this may yet be a way to avoid the inclusion of the bonus into the regular rates of employee wages, with the accompanying extra overtime required to be paid.
I just read a recent article about survey results that indicate that employers fear wage hour suits contesting employee classification as exempt (or not). The report advised that “in recent years, employers have faced an explosion of wage and hour lawsuits, which are often driven by disagreements over how workers are classified.”
This area is good fodder for plaintiff’s lawyers. Usually, if a group (large or small) of workers is held to be exempt by the employer, that overall classification works to show the common policy, practice or plan that plaintiffs need to get conditional certification. In 2012, more than 4000 class actions were filed and settlements totaled $467 million.
The fee shifting aspects of wage hour laws (e.g. FLSA) also creates a great deal of worry (and potential liability) for employer/defendants. The longer the case “drags on,” the bigger the fee petition will be. On an exemption issues, especially if it is the administrative exemption, the grayest of the three, the risks of losing at trial and the concomitant claims for fees (plus actual damages) can be daunting, to say the least.
There are other FLSA “popular” causes of action. There have also been a host of case alleging non-payment for “hours worked.” Travel time cases, automatic lunch deduction cases, pre-shift activity cases and the increasingly infamous “blackberry cases.” These perils are also out there, with the same fee shifting consequences and potential for exposure.
The best defense is to be proactive. Scrutinizing job classifications with an eye towards making true, up-and-down calls on exemption issues and reducing potential back pay liability is paramount. Moreover, work time policies must also be examined, especially with a focus on “off-duty” activities, i.e. preliminary and postliminary activities. Keeping abreast of lawsuits within one’s industry is also key. Once plaintiff attorneys get into an industry (e.g. restaurant industry) there is a seemingly geometric multiplying effect that occurs.
One continuously evolving area of wage and hour law is “when did the employee start working?” According to the FLSA, employers must pay their employees for all hours worked. The FLSA, however, does not define the term “work,” leaving the question of “what constitutes hours worked” unanswered. The issues of whether time spent commuting, changing into uniforms or putting on safety equiptment, undergoing security screenings, and loading equipment are left for the courts. Although one might assume these issues are limited to certain industries, just last week, a former Apple retail employee alleged that the company violated wage and hour laws by failing to pay hourly workers for time they spent waiting to clock in each day, check electronic devices in and out, and undergo bag searches after each shift.
The claim alleged that workers typically arrive 15 minutes early because they are required to wait in line to clock into the time tracking software used by Apple. On days when the company launches new items, the claimant alleged that the wait time could reach up to 30 minutes because of clock-in lines.
The complaint continued…at the start of their shifts, employees are required to “check out” company devices for use during their shifts. Before employees leave, either for breaks or at the end of their shifts, they must check back in those devices. The complainant alleged that the wait time for checking in the devices could take up to 45 minutes. Lastly, the claimant alleged that Apple has a policy that subjects employees to bag searches before they leave the store. According to the claim, the search occurs after employees clock out and check in their devices, and require employees to wait in line “for at least 10-15 minutes each day.”
The wage and hour question is: should employees be paid for this time? This should be an interesting case to follow since it is brought by a retail employee in the technology field. In the meantime, employers should consider the impact of their check-in requirements and time reporting systems, to minimize the risks of a wage and hour claim.
The case is: (Kalin v. Apple, Inc., N.D. Cal., No. 13-04727, complaint filed 10/10/13).
In a victory for banking employers, the DC Circuit Court of Appeals refused to give an en banc hearing to a decision by one panel that voided the U.S. Department of Labor‘s “white paper” on the status or mortgage loan officers as (with few exceptions) non-exempt employees, i.e. eligible for overtime pay. The case is entitled Mortgage Bankers Association v. Thomas Perez et al.
A trio of former Quicken Loans loan officers filed a petition asking the entire Circuit to hear the case. The decision not to hear the matter en banc allows the July decision to stand, one which contended that 2010 DOL Administrative Interpretation that rescinded an earlier DOL Opinion Letter holding that the majority of loan officers were included within the administrative exemption of the Fair Labor Standards Act (“FLSA”) was invalid because the DOL did not go through notice-and-comment rulemaking.
Although the “original” panel did not formally address the DOL position on the loan officers’ exempt status, as its decision focused on the impropriety of the purported DOL “rulemaking.” The MBA had challenged the 2010 Interpretation on the basis that the agency impermissibly reversed its earlier position without allowing so-called interested parties to comment. The district court agreed with the DOL position but the MBA appealed and a panel of the DC Circuit reversed the lower court.
The appellate Court, relying on its own precedent, concluded that when an agency has interpreted its own regulation in a definitive manner and then does a complete about face on that interpretation, the practical consequence is that the agency has amended its own regulation and this then mandates the implementation of the rule making procedure. The DC Circuit panel determined that, given this longstanding precedent, the DOL was required to engage in rulemaking before it could make such a momentous change to the exempt status of loan officers under the FLSA.
What does this decision do for the employer-defendant banking community? Although the “merits” of the Interpretation were not struck down, this cannot but deal a blow to the agency’s position. Absent the official “endorsement” of the agency, which a court might well give deference to, I believe there is now an opening for banks/financial institutions to espouse and cogently argue that these employees are administratively exempt.
In August 2013, Governor Christie approved an amendment to the New Jersey Law Against Discrimination (“NJLAD”) prohibiting employers from retaliating against employees who request current or former colleagues to provide information about their job title, occupational category or pay. The amendment is designed to combat pay inequality, based on the notion that if employees know they can ask each other about their salaries and benefits, they would more freely discuss these topics and discriminatory practices would be harder to hide.
The bill was first introduced as amending New Jersey’s Conscientious Employee Protection Act (“CEPA”) but Governor Christie conditionally vetoed it. The Legislature then reintroduced it as amending NJLAD, which was more consistent with the original intent of the law of tackling workplace discrimination.
In 2012, Governor Christie also amended New Jersey’s Equal Pay Act requiring covered employers to provide written notification to employees of their right to gender equality in pay, compensation, benefits and other terms and conditions of employment. Both of these amendments are aimed to tackle pay inequality at the workplace and New Jersey employers should be conscious of these two amendments as they implement compensation plans, but should also reevaluate their practices generally.
When investigating federal wage discrimination claims, the Equal Employment Opportunity Commission (“EEOC”) analyzes more than just employee wages when evaluating employers’ compensation systems for potential discrimination. Sharon Alexander, special assistant to EEOC Chair Jacqueline Berrien, said the commission uses two lenses when investigating possible pay bias under Title VII of the 1964 Civil Rights Act and the Equal Pay Act. One lens focuses on “apples to apples” wage comparisons, she said. The other lens considers broader practices that might not constitute compensation bias per se, but may nonetheless have a discriminatory effect on pay.
Thus, New Jersey employers should not only be mindful of just general wage comparisons, but should closely consider their broader practices that may have a discriminatory impact on pay.
A federal judge has given approval to a fourteen million dollar settlement in a case where technicians working for Roto-Rooter Services Company alleged they were not paid overtime properly. The settlement also resolves related/pending arbitration proceedings. The case is entitled Morangelli et al. v. Chemed Corporation and was filed in federal court in the Eastern District of New York.
The plaintiffs, paid on commissions, alleged that they were not paid the minimum wage or overtime and suffered illegal wage deductions. The arbitration proceedings were set in motion when the Court granted the Company’s motion to compel arbitration of the plaintiffs who had signed arbitration agreements.
In a tactical ping-pong game, the plaintiffs filed a lawsuit in 2010 and then, after the class was certified, the Company moved to compel arbitration of the plaintiffs’ claims. These plaintiffs had signed two different arbitration agreements. The judge concluded that one set of plaintiffs had to proceed in arbitration (based on the agreements) and another set could bring their cases in federal court.
While the parties brought summary judgment claims in court, an arbitrator ruled that the arbitration agreements did provide and allow class arbitration which could have meant parallel proceedings going forward, where the substantially same claims would be raised. The settlement now does away with these possibilities.
I see this kind of scenario playing out in the future perhaps with disturbing regularity as more and more employers use arbitration agreements to deal with employee wage/OT/class action claims. The specter of two (expensive) actions proceeding simultaneously is perhaps the “best” facilitator of settlements of such cases.
Students and recent grads looking for work experience are often routed towards the path of the “unpaid internship.” These young people work for free, and often have to subsidize the cost of commuting, while performing the same work as paid employees. The days of working for free, however, may be waning, after a New York federal judge ruled that Fox Searchlight Pictures violated minimum wage and overtime laws by failing to pay the interns who worked on production of the movie “Black Swan.” The case is entitled Glatt v. Fox Searchlight Pictures and was filed in the federal court in the Southern District of New York.
The decision adheres to the six-part test outlined by the USDOL for gauging whether an intern is an “employee” or not. According to the test, the determination of whether an internship can be unpaid depends on the facts and circumstances of each program and the application of the following six factors:
1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
2. The internship experience is for the benefit of the intern;
3. The intern does not displace regular employees; but works under close supervision of existing staff;
4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
Significantly, only if all of the factors listed above are met, an employment relationship does not exist under the FLSA, and the Act’s minimum wage and overtime provisions do not apply to the intern.
This decision and others like it that have recently been issued stand as a warning to employers who seek to engage (not “hire”) young people to work as interns. If the six-part test is not met in its entirety, then the person or persons will be deemed employees and entitled to the minimum wage (and overtime, if applicable). That potentially dramatic liability must make employers act very cautiously in these matters.