Header graphic for print

Wage & Hour – Developments & Highlights

To Highlight Recent and Noteworthy Developments In Cases And Regulations on Wage and Hour Laws That Affect Large and Small Businesses

DC Circuit Reverses District Court on Home Companionship Overtime Exemption

Posted in Exemptions, Overtime Issues

I have followed this saga for some time and believed that the Court would not side with the USDOL on this matter.  I was wrong.  The Court of Appeals for the District of Columbia has just held that the USDOL’s decision to make home care workers eligible for overtime is a reasonable interpretation of the law.  In so doing, the Court reversed the district court.  The case is entitled Home Care Association et al. v. David Weil et al.

The Court held it appropriate that the DOL rule should give home care workers the same FLSA protections given to workers who provide “most of the same services in an institutional setting” and held that the agency’s “decision to extend the FLSA’s protections to those employees is grounded in a reasonable interpretation of the statute and is neither arbitrary nor capricious.”

The new rule revises the companionship services definition and specifies that the overtime exemptions previously allowed for companionship services and live-in domestic service will only apply to individuals or families and not to companies or employers (e.g. home health care agencies) that send homecare workers into the homes of their clients.  The rule brings overtime eligibility to two million new workers.

The Second Circuit agreed with the DOL position, where the agency contended that the US Supreme Court’s 2007 decision in Long Island Care at Home Ltd. v Coke precluded the plaintiff’s attack that the DOL did not have the authority to issue its amended third-party employment regulation. The Court stated that “[Coke] confirms that the act vests the department with discretion to apply … or not to apply … the companionship-services and live-in exemptions to employees of third-party agencies.”

The Takeaway

When the law suddenly turns against the employer, it must ascertain how to maintain compliance with the new legal landscape at the same time maintaining efficient operations and making a profit.  Put differently, the fundamental issue is how to meld legal dictates with operational needs.

With an issue like this, it may not be easy.  The “easy” solution is to limit these workers to no more than forty per week, so overtime never becomes an issue.  This may not be operationally feasible, or simply by the nature of the employment, the workers will invariably work more than forty hours.  Lowering wage rates to account for the overtime is another option but this creates serious employee relations problems and if the employees are making close to the minimum, how far down can wages be cut?

Maybe the answer is to, somehow, and legally, build in the overtime, if the workers will usually/always work the same hours every week.

Motion To Dismiss New Jersey State Overtime Claim in FLSA Case: Why Do It?

Posted in Overtime Issues, State Wage & Hour Laws

In most (if not all) FLSA cases I handle, whether single plaintiff or collective action, there is usually a State of New Jersey cause of action set forth as Count II, with the FLSA Count as the first one.  The New Jersey Count is duplicative of the federal count to the extent that people (ultimately) opt-in to the federal case (but without the liquidated damages) but the state Count is governed by Rule 23 considerations, not the opt-in principles.

In Thompson v. Real Estate Mortgage Network, Inc., the plaintiff, Patricia Thompson, sued her former employers for allegedly failing to compensate for overtime work, in violation of the FLSA and the New Jersey Wage and Hour Law (“NJWHL”).  Under FRCP Rule 12(b)(6), the Employer moved to dismiss the state Count on the pleadings, asserting that a claim for overtime was not cognizable under the New Jersey minimum wage law.

The Employer argued that the lack of a definition of the term “minimum fair wage” in the section of the NJWHL that conferred a private right of action precluded an overtime action from being brought.  The defendants argued that, without a specific definition, a court could not expand that term to include overtime claims.  The district court Judge began his analysis by observing that it was not” immediately apparent” to the Court that a “minimum fair wage” excluded overtime.

With that said, the Court then noted (as was quite plain) that the NJWHL’s statute of limitations section – titled “Limitations; commencement of action” – did refer explicitly to overtime compensation.   Thus, the court reasoned that “if the State legislature did not intend to create a private right of action for overtime compensation, this language is inexplicable.  The New Jersey legislature would not have prescribed a limitation period for a nonexistent cause of action.”

The Court also observed that the FLSA included a right of action to recover withheld overtime payments and that the principle of parallel construction suggested that the NJWHL should be interpreted the same way.  Noting that these laws should be interpreted liberally, the Court found it “difficult to conclude that the NJWHL gives employees fewer or narrower rights than the FLSA.”

The Takeaway

There is an old canon in the world of litigation—you don’t want your first motion, your first initiative before a Court (any court) to be a loser.  To me, that was the entire reason for not doing this.  The liberal construction given to wage hour also should have, by itself, precluded this approach.

Second, more importantly, reading the statute as a whole and noting that the statute of limitations explicitly included overtime claims in it should have been another red flag tip-off that this motion was destined for failure.

If the impetus for the motion was to buy time for the employer to come into compliance, that is one thing.  But, if not, I am left to wonder the reason for doing it…

Sirius XM Settles FLSA Intern Case: Good Use of Formulas as a Basis for Settlement

Posted in Class Actions, Working Time

There have been a host of intern cases of late, the theory being that these individuals were actually doing productive work, acting as if they were employees, and were not paid for their labor that facilitated the particular company’s business.  In another example of this phenomenon, Sirius XM has just settled a putative FLSA collective action for approximately $1.3 million.  The case is entitled Tierney v. Sirius XM Radio Inc. and was filed in federal court in the Southern District of New York.

The suit was filed in April 2014, with the fundamental allegation being that these folks performed work that was vital to company operations and received neither academic credit or (at least) the minimum wage.  As usual, a good chunk of the settlement monies ($300,000) goes to the plaintiffs’ counsel.  (This is one of the biggest threats/dangers in a FLSA case for the employer, the fee-shifting nature of the statute).  More than 1,800 interns will actually share in the proceeds of the settlement.

In an interesting twist, the first named/lead plaintiff was removed after she “became unexpectedly unwilling to produce responsive documents or to participate in her deposition,” as set forth in the settlement.  A good deal of discovery had been taken and there were numerous settlement conferences, which provided a reasonable basis for the Court to approve the settlement.

Yet another interesting twist was to tie the compensation for opt-ins into a formula based upon the number of Sirius XM “internship sessions” that a person attended during a given span of time during 2008-2015 depending on the office in which the intern worked.  Thus, there was no need to make specific, individualized determinations as to how many hours were actually/supposedly worked by each intern.

The Takeaway

Using formulas is an expedient methodology to effect a settlement of a collective or class action, especially (and obviously) in situations where neither time records have been maintained or there exist hundreds, or thousands, of time record documents to sift through to arrive at “accurate” determinations.  The formula method is a much cleaner way.  I have used this method myself a number of times to bring a settlement to finalization, so as to avoid hours of negotiations about who should get what.

This also makes it easier for a Court to approve a settlement (and there have recently been a rash of cases where federal courts did not approve settlements).  The last thing the parties, especially the defendant-employer, want is for a settlement to fall through or not be approved because of uncertainties or arguments about the compensation due to the opt-in employees.

No Expert Fees Allowed in FLSA Case: A Great Start

Posted in Class Actions

When I defend a FLSA case, the plaintiff’s attorney always seems to want to hire an expert on “damages” or actually does hire such an expert.  I usually am dumbfounded by that because I ask myself (and plaintiff’s counsel) why is there a need for an expert when “it’s just math” and no arcane or esoteric issues for such calculations ever exist?  I also see it as a ploy for the adversary to add more to his fee petition.  Well, I seem to have read the tea leaves correctly on this as the Second Circuit has just ruled that a winning plaintiff cannot be reimbursed for expert fees under the Fair Labor Standards Act.   The case is entitled Gortat v. Capala Brothers Inc. et al., in the Court of Appeals for the Second Circuit.

The panel reversed the lower court’s decision to award the plaintiff more than $10,000 in costs for an accounting expert who testified for the workers.  The Court made plain that a district court cannot award reimbursement for expert fees unless the statute under scrutiny explicitly references such awards.

The Court stated that “unlike other statutory provisions explicitly authorizing such reimbursement, 29 U.S.C. §216(b) of the FLSA does not expressly address awards reimbursing prevailing plaintiffs for expert fees.”  The Court affirmed all other aspects of the lower court’s decision to award the plaintiffs $514,000 in attorneys’ fees and nearly $68,300 in costs.

The Court also looked to Supreme Court precedent for the basis of its decision and stated that the decision was consistent with those emanating from four other federal circuit courts.  This was in direct contradiction to the district court which opined that “courts have awarded expert fees to prevailing parties in cases brought pursuant to the FLSA.”

The Takeaway

Maybe this will start a trend.  Hopefully.  Maybe the FLSA plaintiffs’ bar will start to understand that hiring an expert is superfluous and, if they understand that they will have to bear the costs for the expert themselves, maybe they will stop using them.  Or, maybe they will stop using the “threat” of utilizing an expert as leverage to extract a settlement.  I have seen that tactic tried numerous times.

After all, why is an expert needed?  It’s just math…

Second Circuit Reverses on Lawyer Professional Exemption Case: What in the World Is Happening?

Posted in Class Actions, Exemptions, Overtime Issues

I have blogged about this matter several times, all the while applauding the lower court decision and employer’s legal position in the case, as I believed what these temporary lawyers were doing did constitute the practice of law.  The Second Circuit has now disagreed.   The Court has ruled that document review work does not equal, automatically, the practice of law.  The case is entitled Lola v. Skadden Arps Meagher Slate & Flom LLP in the Second Circuit Court of Appeals.

The Second Circuit agreed with the district Judge that the state law of North Carolina, where Lola worked, was the proper law to analyze, but concluded that the judge erred when he ruled that document review was “per se” the practice of law.  The Court noted that a “fair reading of the complaint in the light most favorable to Lola is that he provided services that a machine could have provided.  The parties themselves agreed at oral argument that an individual who, in the course of reviewing discovery documents, undertakes tasks that could otherwise be performed entirely by a machine cannot be said to engage in the practice of law.”

Thus, the law firm’s motion to dismiss victory was overturned.  There will now have to be the usual discovery and subsequent motions (e.g. summary judgment?) focusing on the question (as urged by the plaintiff) whether the “mechanical” document review work he performed was not the practice of law because it didn’t require any legal knowledge, skill or training,  according to the plaintiff.

The district court Judge concluded that as any kind of document review was deemed the practice of law in North Carolina, the claim had to be dismissed.  The Second Circuit disagreed and relied upon a North Carolina State Bar ethics opinion that stressed that there had to be “the exercise of at least a modicum of independent legal judgment” for it to be considered legal work.  Judge Poole, writing for the Court, noted that “moreover, many other states also consider the exercise of some legal judgment an essential element of the practice of law.”

The Takeaway

Maybe an en banc hearing is necessary for the “right” result to issue?   I believe that document review of the kind at issue here, does involve some exercise of discretion and independent judgment.  Such document review does involve some level of and demand for the worker being required to “think like a lawyer.”

I think this decision is wrong.  Maybe it will now go to trial?  Maybe it will now be settled, leaving the issue for another court and another day?

Maybe it will end up in the U.S. Supreme Court…

USDOL Proposes New Independent Contractor Regulations: Another Bright Line

Posted in Independent Contractor

I have defended and litigated dozens of independent contractor cases and have found these matters to be intensely fact sensitive and tilted, in large part, towards a finding of employee status by both the agencies and the courts.  I had also noted in a recent post that the US Department of Labor would be issuing new proposed guidelines for these determinations.

Well, the DOL has issued those guidelines; they are targeted towards “curbing” the allegedly wholesale misclassification of employees as independent contractors.  The thrust of the regulations is to include many (think, millions) more workers as statutory employees.  This is because improperly classified people do not receive minimum wage protection and overtime pay.

The proposed regulations will focus upon/emphasize the fundamental issue of whether the person is truly in an independent and self-sustaining business for himself, as opposed to being economically dependent on the particular employer.   Within that general umbrella, there are “economic realities factors” that will inform the classification determination.

The agency posits that these should not be “should analyzed mechanically or in a vacuum,” nor should any single factor be accorded an excessive amount of weight.  The DOL also added that the economic realities that courts utilize to decide independent contractor issues and the FLSA “suffer or permit” test have a wider reach than the common-law control test that Congress rejected when it enacted the FLSA.

The head of the Wage Hour Division stated that “whether a worker is an employee under the Fair Labor Standards Act is a legal question determined by the economic realities of the working relationship between the employer and the worker, not by job title or any agreement that the parties may make.”  He added that “the Labor Department supports the use of legitimate independent contractors — who play an important role in our economy — but when employers deliberately misclassify employees in an attempt to cut costs, everyone loses.”

The Takeaway

These proposals, similar to the exemption regulation proposals, draw a bright line between employees and independent contractors.  Employers will find, if these proposals are adopted as written (or nearly so), that treating anyone as a non-employee is going to be very difficult.  That might not be such a bad thing!

The most important criterion for someone to be an independent contractor is whether they are in a business that would survive the termination of a particular “employment” relationship.  The putative employer must ensure, insofar as possible, that the contractor has the “outward” indicia (web site, business address, incorporated, etc) of a “business,” but more importantly, that the contractor actually derives some business income from other sources.

Also, if the work at issue is further away from, rather than closer to (i.e. integral) the main business of the putative employer, the more likely that the person is an independent contractor.  The landscaper engaged by a trucking company is more likely to be deemed an independent contractor than a dispatcher engaged by that same company.

Interns Deemed Non-Employees By Second Circuit

Posted in Class Actions

I have been following the protracted saga developing in the Second Circuit concerning whether interns are employees.  Recently, this Circuit overturned a lower court decision that granted conditional certification to an intern (and the putative class) alleging that they were statutory employees. That case is entitled Glatt et al. v. Fox Searchlight Pictures Inc.  Concomitantly, in Wang v. The Hearst Corp., the Second Circuit upheld a ruling that denied certification in another intern case.

The appellate court concluded that the “primary beneficiary test” should be utilized to determine if the plaintiffs were employees, rather than the test espoused by the plaintiffs, which was the individuals would be deemed employees if their “employer” derived some immediate benefit from their work.

The Second Circuit would not defer to the USDOL’s six-part test set forth in a 2010 fact sheet offering guidance as to what constituted an “unpaid internship,” concluding that this “test” was essentially derived from the almost seventy-year old US Supreme Court Portland Terminal Company decision and further opined that the DOL did not possess a “special competence or role” when it came to interpreting court rulings. The Court chided the DOL test for being “too rigid.”

The Court sided with the defendants who asserted that the correct analysis was whether the intern or the employer was the primary beneficiary of their relationship; the defendants urged scrutiny of seven non-exhaustive factors in that determination.

Those factors include: 1) if there is a clear understanding that there is no expectation of compensation; 2) whether interns receive training similar to what they would get an educational environment; and, 3) to what the extent the internship is tied to a formal education program. Even though the Court rejected the six factor DOL fact sheet, the Court did not express an opinion on the result in a “new” case brought under the primary beneficiary test.

The Takeaway

There certainly is an issue with possibly abusive internships involving what is commonly referred to as “grunt work.” These workers should be entitled to the protection of the FLSA, i.e. minimum wage and overtime. There are, however, a great many internships that people strive mightily to secure and which fit the criteria enumerated by the Second Circuit.

As is the case with so many wage-hour/personnel issues, a policy, clearly outlining the terms and conditions of the internship, will go a long way to establishing to a court (if need be) that the particular internship fits within these new guidelines.   Maybe new guidance will issue from the DOL.

Maybe the US Supreme Court will ultimately decide the issue…

The New FLSA Exemption Salary Proposal: It Don’t Worry Me!

Posted in Class Actions, Exemptions, Overtime Issues

The news is out that the US Department of Labor has (finally) proposed the long-awaited revisions of the FLSA regulations.  In a bold initiative, the agency proposed to raise the salary threshold to almost $1000 per week (to $50,440 annually).  This is more than double the current minimum salary level of $455 per week, or $23,660.  Under this proposal, it is estimated that five million more workers would be overtime-eligible.

The proposal will be published in the Federal Register and then the 60-day comment period will follow.   The DOL further proposed to build into the threshold an automatic escalator provision that will keep the salary level “current,” whatever that may mean.

The agency is also seeking input on whether changes should be made to the duties test, especially whether the federal regulations should adopt the California model, where to be exempt, a minimum of at least 50 percent of worker time must be spent performing exempt duties to qualify for an exemption.

There is some sentiment that the new salary threshold will lessen litigation.  Interestingly, this comes from Justin Swartz, a plaintiff side wage-hour attorney who commented that “employees and employers should welcome the new rules because the salary basis threshold is a clear line that’s easy to interpret and will cut down on misclassification lawsuits.”

The counter to that comes from the National Retail Federation which states that “the administration seems to be under the distorted impression that they can build the middle class by government mandate. Turning managers into rank-and-file hourly workers takes away the career opportunities offered by private sector entrepreneurs and job creators that are the true path to middle-class success.”

The Takeaway

Ironic as it is for me to agree with an adversary, I welcome this proposal because it will decrease litigation because a very bright line will be established.  Many FLSA collective actions involve assistant managers and other first-level supervisory personnel who make just more than the current minimum and whose job duties may or may not meet the primary duty test of the regulations.  Now, those cases will go away.

Conversely, an employer paying an employee $1000 per week is likely having them work at a job that will be deemed exempt if scrutinized.  I also believe (strongly) that an employer’s labor costs need not rise due to a possible “wholesale” re-classification of employees.  The correct hourly rate can be computed or arrived at so that, even with the overtime hours worked, at the time and one-half rate, the aggregate outlay for the employer will be the same as before.

On balance, so far,—a good thing.  With that said, now let’s see what happens with the duties tests revisions.

That may be a wilder ride!

Preemption Defense In Federal Court Dooms NJ State Overtime Claim

Posted in FLSA Retaliation, Working Time

When a FLSA case (or a state law wage hour case) is filed against a unionized client, the first line of defense for me is to ascertain if we can argue that the court has no jurisdiction because the wage hour claims are preempted by federal labor law and must be decided pursuant to federal labor contract law.  Preemption is also appropriate where the state-based cause of action is “inextricably intertwined” with the collective bargaining agreement.  In Johnson v. Langer Transport Corporation, filed in federal court in New Jersey, this doctrine has recently been given renewed vitality.

The plaintiff claimed that he was not paid regular or overtime wages, that the Company failed to accurately record wages and hours and then retaliated against him when he made complaints regarding his allegations of unpaid wages. The Company argued that this would necessarily require the Court to examine and interpret the labor contract to determine the worker’s pay rate, how hours were reported and tracked, the Company timekeeping policies, and its policies for reporting errors in pay.

The plaintiff contended that there was no dispute about the labor contract, what it says, or anyone’s rights under the contract. Instead, the plaintiff argued that he was not paid for hours he worked with the Company because it “manipulated” the time clock and refused to pay him. This, according to the plaintiff, did not require an analysis of the contract’s terms.  He argued that the factual determination of the amount of time worked, and the legal determination regarding whether this time is compensable under the applicable wage law did not depend on a reading of the terms of the labor contract.

The Court concluded that the claims for unpaid wages under the New Jersey Wage Hour Law were preempted under the Labor Management Relations Act because such claims, at their core, required an analysis and interpretation of the contract.  While the Court recognized that not every dispute tangentially involving a provision of a collective bargaining agreement is preempted, because that would be inconsistent with congressional intent, the core allegations of this Complaint were founded directly on rights created by the labor contract, specifically the Plaintiff’s right to be paid in accordance with labor contract provisions.

The Takeaway

If the labor contract provision at issue violates an explicit state wage hour law, then the wage claim is not preempted.   For example, in New Jersey the minimum wage is $8.38 per hour; if management and labor agreed to pay a starting rate of $8.00 per hour, such an explicit violation would exist and preemption would not be appropriate.

If, on the other hand, an arguable contention can be made that the dispute requires interpretation of contract terms, or explicitly addresses a matter agreed to by management and labor negotiators and codified in the contract (sometimes for years), the case for preemption becomes that much stronger.  If faced with a state court or NJDOL proceeding involving such an issue, the defendant (i.e. Employer) should strongly consider moving for a declaratory judgment in federal court.

A Bumpy Ride: Uber Driver Ruled Employee, Not Independent Contractor

Posted in Independent Contractor

The Uber phenomenon has been catching fire over the last few years with many people jumping on it as a means to make a living or extra money.  I have some friends who have signed up to be Uber drivers, just as a means to make some extra money.  I always thought these people to be independent contractors but this view, this world, may have just been totally turned upside down.

This is because the California Labor Commission has ruled that an Uber driver is an employee, not an independent contractor and thus the Company’s entire business model is thrown into turmoil.  The case is entitled Uber Technologies Inc. v. Berwick, filed in the Superior Court of California, as an appeal from the Commission decision.  The ruling (awarding the plaintiff payment for business expenses, e.g. tolls, mileage) may mean that Uber might have to give these “employees” health insurance and other benefits, which could radically disrupt the manner in which Uber does business.

The Company argued that it did not control the individual and she could work or not, as she pleased.  The Commission ruled that the Company acted like an employer when it supplied the person with an iPhone to be able to access Uber’s smartphone app.  The Company also screened potential drivers.  The Commission found that the Company held itself “out as nothing more than a neutral technological platform, designed simply to enable drivers and passengers to transact the business of transportation.  The reality, however, is that defendants are involved in every aspect of the operation.”

The Company asserted that this decision conflicted with another Commission decision finding an Uber driver was not an employee and it also conflicted with similar positive decisions in Georgia, Pennsylvania, Colorado, Texas and Illinois.

The Takeaway

The element of control is not the only factor considered in the totality of the circumstances analysis that is the independent contractor test.  For example, if an individual (as could be argued by the Commission herein) is performing a service integral to the business, this is an indicator that the worker is an employee.

A commentator has suggested that perhaps there will emerge from this cauldron is a hybrid form of employment relationship, not a true employee, not a true independent contractor, but somewhere in the middle.  In this regard, there are also currently class actions against Uber pending in federal court, so (assumedly) the federal courts will have input on this crucial issue.

I am not sure about the hybrid definition, unless it emanates from Congress, so as to ostensibly apply to the entire country.  These independent contractor cases are extremely fact sensitive and the Commission or a court can reach different decisions on different individuals.   For employers engaging so-called independent contractors, my advice is to try to ensure that they are in their own business, that they have the indicia or trappings of being in their own business (e.g. incorporated, have other customers/clients, etc.) in addition to not being controlled by the putative employer.

Easier said than done…