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Wage & Hour – Development & Highlights

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

Gawker FLSA Collective Action Illustrates Clash of Technology and Law

Posted in Class Actions

When a class is certified in a Fair Labor Standards Act collective action, the employer turns over names and addresses and the opt-in letters go out.  Nowadays, there is a distinct variation on this theme.  I have often commented (lamented) on the clash of technology and the law and this is another example of that tension.  A federal judge has now approved the request of former Gawker Media LLC interns to notify potential class members of the proposed collective action through social media.  The Judge, however, (thankfully) concluded that “friending” these putative opt-ins was too much.  The case is entitled Mark et al. v. Gawker Media LLC and was filed in federal court in the Southern District of New York.

The interns, who claim they are actually employees under the Fair Labor Standards Act and entitled to unpaid wages/overtime, requested that they be allowed to notify potential class members via Facebook, Twitter and LinkedIn.  The employees assert that email/mailing addresses for fifty-five (55) former interns were not available, but they claimed that more than two dozen of them had Facebook/Twitter accounts and sixteen had LinkedIn accounts.

The employees asked permission to “follow” the former interns on Twitter so they could send them a direct private message.  They also wanted to “friend” former interns on Facebook so that they could send a direct message that did not go automatically to spam; they also wanted to send “InMail” messages to other former interns on LinkedIn.

The Judge’s Order approved the requests but set two conditions: 1) the plaintiffs “unfollow” any former intern on Twitter if the intern does not opt in by the set deadline; and, 2) the plaintiffs were not allowed to “friend” individuals on Facebook “as it could create a misleading impression of the individual’s relationship with plaintiffs’ counsel.”  The Judge denied the request to send email notices to a mass list of intern applicants which could or could not include individuals who actually worked as interns, as that was overbroad.

Last month, the Judge denied the plaintiffs’ request to notify putative opt-ins by posting notices on social media sites Tumblr and Reddit, concluding that this would tend to notify people not connected to the case, as opposed to individuals with opt-in rights.

The Takeaway

Oh, how I yearn for the “old days” when snail mail ruled!

The purpose of the FLSA notice is to advise eligible people of the lawsuit and to give them the opportunity to opt in.  The purpose of the notice is not to advertise the alleged violations of the employer and to give unbridled and widespread publicity to the lawsuit.  This is exactly what can (and will) happen if plaintiffs win the right to utilize social media in their dissemination of the opt-in procedure.  The fear for me, as a management side practitioner, and for employers, is that it also may incite others to file similar lawsuits, founded or otherwise.

It does not matter if this is right or wrong.  It is here to stay.  I have been involved in a number of class actions where this social media reach outreach has been allowed.  This is more the rule than the exception and employers need to be keenly aware of this.

No Soup for You, Part II: an attorney’s claim of retaliation for being banned by a business he filed a lawsuit against

Posted in FLSA Retaliation

In November we reported on Wigdor v SoulCycle, which had been filed in New York Supreme Court, New York County.  In that action a well-known plaintiff’s attorney, Douglas Wigdor, alleged that SoulCycle retaliated against him by banning him from the Company’s establishments because Wigdor had filed a putative wage and hour class action against SoulCycle.

This action reminded us of Jerry Seinfeld’s “Soup Man,” who would decline to serve customers that did not properly place a soup order.  We had previously asked whether the owner of a store has a right to prevent counsel from entering, for example, to solicit business in their establishment.  The answer is apparently: yes …. and no.

In Wigdor v SoulCycle, Mr. Wigdor asserted four claims: (1) retaliation under New York Labor Law (NYLL) § 215; (2) retaliation under California Labor Code (CLC); (3) prima facie tort; and (4) breach of an obligation of good faith and fair dealing.  SoulCycle moved to dismiss all claims for failure to state a claim, and now the Court has issued a decision on that motion.

The Court dismissed three of the four claims – the retaliation claims under NYLL and CLC as well as the prima facie tort claim – but declined to dismiss the claim for good faith and fair dealing.  See Wigdor v SoulCycle, Index 161572/2014 (Sup. Ct, NY County April 13, 2015).  In dismissing the NYLL and CLC retaliation claims the Court recognized, as we noted in the November blog, that both statutes prohibit retaliation against an “employee.”  Indeed, NYLL § 215 states: “No employer … shall discharge, penalize, or in any other manner discriminate against any employee because such employee has made a complaint to his employer….” id. (emphasis supplied).  The CLC contains a similar provision.  Yet neither statute references protection for the employee’s lawyer.  The Court explained:

Contrary to the plaintiff’s contention, the text of Labor Law § 215 does not reveal a clear intent to authorize a claim where an employer retaliates against an attorney that represents a former employee of the employer.  Indeed, neither the plain language of the statute nor its legislative history, as revealed by the 1967 bill jacket accompanying its enactment and the 1986 bill jacket accompanying its amendment, contemplates an action by someone other than an employee making complaints regarding a former employer.

Id.  Additionally, the Court dismissed the claim for prima facie tort because “other than conclusory contentions, there are no facts supporting the assertion that defendants sole motivation for banning plaintiff from SoulCycle premises was intended to maliciously injure plaintiff.”   Id.  Thus, Seinfeld’s Soup Man would appear to be vindicated.

Unfortunately, the case took a turn for the worse for SoulCycle as the Court refused to dismiss the final claim for breach of good faith and fair dealing.  A prerequisite for asserting such a claim under New York law is that a plaintiff must plead and prove that there was a contractual relationship between the plaintiff and defendant.  SoulCycle argued that it never had a contractual relationship with Wigdor and therefore the claim should be dismissed. The Court disagreed concluding that when Wigdor plead that he had “electronically agreed to SoulCycle’s terms and conditions” he established, at least for the purpose of stating a claim, that a contractual relationship was created.   Accordingly, the breach of good faith and fair dealing claim survives, for now.

Thus, it seems the Court’s ruling does give some guidance to our inquiry as to when a business owner has an appropriate say in deciding who should not be allowed to patronize his/her business.  Certainly, had there been no prior business relationship between Wigdor and SoulCycle, and then this case would have been dismissed.  Yet, apparently when there is some prior “contractual relationship” then the lines become a little cloudy as to when the business owner can decide whether someone should continue to patronize the business.  We are now left to ask, merely because someone had patronized the business before and abided by the terms and conditions of the business owner, such as paying for the goods and services rendered, when can the business owner end that relationship?  How long does the former patron get to ask, as Oliver Twist might – “Please Sir, can I have some more?”

The FLSA Administrative Exemption Not Applicable To Oil Company Employees

Posted in Exemptions

Another administrative exemption lawsuit! The FLSA administrative exemption is the most difficult to defend and toughest to prove for an employer. The Fifth Circuit has now held that three marine superintendents at petroleum shipping loss-control company were non-exempt and did not meet the tests for the administrative exemption under the Fair Labor Standards Act. The case is entitled Zannikos et al. v. Oil Inspections (USA) Inc. and issued from the Fifth Circuit Court of Appeals.

Both the Company and the employees appealed from the lower court’s decision. The Company wanted the non-exempt ruling reversed and the employees wanted the finding of non-willfulness reversed. Neither side got what it wanted. The appellate court found no evidence of willfulness but also agreed that the workers were non-exempt. The plaintiffs’ lawyer hailed the decision as “a major victory for the marine superintendents who for years have been denied their overtime pay.”

The Company oversees and monitors oil transfers to make sure such shipments are in compliance with industry standards. The marine superintendents were entrusted with observing the transfers and for making sure that the loads were accurate, legal and safe. The superintendents oversaw the loading and unloading of the cargo; they reported errors or losses, monitored compliance with safety standards, and inspected equipment. They also recommended the adoption of policies as necessary or appropriate.

The employees alleged (as is usual in these administrative exemption suits) that they did not exercise discretion or independent judgment in significant matters, one of the essential (and often disputed) elements for the exemption. The Company contended that the marine superintendents interpreted and implemented management policies, carried out major assignments and performed work affecting business operations, thereby qualifying the employees for the exemption.

The Takeaway

The administrative exemption “fight” always is joined on the issue of whether it is skill and experience being utilized, as opposed to the required “discretion and independent judgment.” In this case, it seems that the superintendents were guided by standards and procedures that were already set in place. Thus, they were not making the evaluative kind of picking-and-choosing choices that the FLSA demands, but rather they were measuring events that happened (the various shipments) against the protocols applicable to those events. That does not suffice for the administrative exemption.

Carnival Workers Get Conditional Certification In Case Where Lawyers Sought To Depose Their Own Lead Plaintiff

Posted in Class Actions

A few weeks ago, I posted about the unique (i.e. strange) situation of the plaintiff’s lawyer in this case seeking to depose his own client. There has been a new development in this case and it is one that dwarfs the importance of the other issue. The workers, who have accused their amusement park employer of not paying proper overtime, have won class certification from the federal district court judge.  Now, the entire tenor of the case has changed (and not for the better for the employer).  The case is entitled Pilar Garcia et al. v. E.J. Amusements of NH Inc. and is in federal court in Massachusetts.

The plaintiffs’ motion for class certification has been granted; the class will cover employees who worked for the Company since 2010, but will exclude employees who have executed releases with the Company.  Significantly, the Judge ruled that the workers can amend the Complaint to add a new lead plaintiff who executed a release but who seeks to challenge the validity of the releases on behalf of the workers who signed them.

The judge put off ruling on the sanctions motion against the amusement park company’s counsel on the allegations that it had improperly scripted settlement communications with class members.

The suit alleged that about 200 workers were paid a flat rate based, for 40 hours, notwithstanding that they often worked seven days per week and up to 14 hours per day.  The workers assembled, operated and broke down various amusement park rides at fairs and carnivals.

The Takeaway

Now, notice will go out to the people in the class and the matter will be complicated by the possible challenge to releases that have already been negotiated and payments made.   If allegations of behind-the-back type dealings are sustained, this could lead to a finding of willfulness (extending the statute of limitations by one year).  Maybe these employees should have been on Belo contracts or some other legally appropriate way of allowing them to work all those hours and yet being in compliance with the FLSA.

Secret Service Hit with Overtime Suit on Off-The-Clock Work

Posted in Class Actions, Exemptions, Overtime Issues

As if the Secret Service did not have enough headaches to go around!  Now, the beleaguered agency has been hit with a class action lawsuit filed by information technology and telecommunication specialists, who allege they were not paid for extra work that was not reported/recorded.  The case is entitled Alvarez et al. v. U.S. and was filed in the Court of Federal Claims.

These employees claim that their supervisors disregarded a March 2013 agency issuance that prohibited more than twenty (20) hours of administratively uncontrollable overtime (AUO) per pay period.  Thus, as a direct result, the plaintiffs alleged they had to work additional hours without recording the time and then being paid properly, i.e. overtime.  The Complaint states that the “defendant has routinely and regularly suffered, permitted or required plaintiffs to work more than 20 hours of AUO per biweekly pay period but has not allowed plaintiffs to accurately record such time worked on their time and attendance records.”

Interestingly, the proposed class includes both exempt and nonexempt employees who regularly worked in excess of forty hours per week; the Complaint alleges that the plaintiffs previously were authorized to receive these AUO payments.  This is because, according to their theory, the plaintiffs were responsible for recognizing, without supervision, circumstances which may have compelled them to remain on duty beyond the usual shifts.  (Under the law, truly exempt employees need not be paid overtime, but if there is a Company/agency policy or practice of paying such employees overtime, then their claim is under the policy and not, per se, the law).

The AUO, according to the office of Special Counsel, is theoretically to be used in instances of irregular circumstances in which employee hours become unpredictable, as when Border Patrol  respond to criminal activity near/at the border and need to stay on duty in excess of their usual shift.  In earlier cases, whistleblowers alleged these AUO payments were misused.

The Takeaway

Ordering employees (explicitly or implicitly) to work and not report or record that time is a very bad, and risky, thing to do.  If that comes out, there is no doubt that class certification will be granted and the violation(s) will definitely be viewed as “willful.”  I understand that often labor budgets are tight and there is pressure from “above” to stay within such budgets, but, I caution, not at the risk of violating wage-hour statutes.

It is also not enough to have a policy against working unauthorized or unapproved overtime.  If the work is being done and supervisory personnel know of the work and do not stop its performance, then they are (as is said under the FLSA regulations) “suffering and permitting” (i.e. condoning) the work to be done and then the employer must pay for that time, whether “up front” or within the context of a lawsuit.

New Jersey Missclassification Wage and Hour Suit

Posted in Class Actions, Independent Contractor

An interesting case coming out of New Jersey…

We often blog about “misclassification” which is a laconic way of referring to the misclassification of employees as something other than employees, such as independent contractors.   Home Depot is experiencing this right now as it responds to a group of cleaning workers who claimed Home Depot failed to pay them proper wages.  Home Depot responded that it has not “employed” these workers and rejected any sort of employer-employee relationship between the Company and the workers.

In light of this current case, below is the current New Jersey test, adopted in a January 2015 case Hargrove v. Sleepy’s, LLC, No. A-70-12 (072742) (N.J. Jan. 14, 2015) to apply when determining an individual’s status for purposes of the New Jersey wage and hour law.

In Hargrove, the New Jersey Supreme Court concluded that the “ABC” test governs.

Under the ABC test, employers will now have the burden of showing that an individual providing services:

(A) Is free from the company’s control in performing the services

(B) Performs work outside the usual course of the company’s business or outside the company’s place of business and

(C) Is engaged in an independently established business.

The Court noted that “the failure to satisfy any one of the three criteria results in an ‘employment misclassification.’”

It will be interesting to see how the court applies the ABC test in the Home Depot case. Stay tuned…

Supreme Court Sides with USDOL on Its Right To Issue New Guidance on Exempt Status of Mortgage Brokers

Posted in Exemptions

I have followed this protracted saga for years, since I wrote an article for the Banking Law Journal in 2001 on the issue of exempt status of mortgage brokers.  Then, in 2010, the US Department of Labor issued a “white paper” on the exempt status of such employees, finding most of them non-exempt under the administrative exemption (the only “white collar” exemption possibly applicable).  The Mortgage Bankers Association successfully challenged that rulemaking in federal district court and the DC Circuit sustained the district court’s striking down of that new interpretation.

Well, the story (or the war) is over!  The US Supreme Court has now held that agencies do not have to go through formal rule-making to effect major changes to their rules interpreting regulations. This is a major victory for the agency and a blow to employers.  The cases are entitled Perez et al. v. Mortgage Bankers Association and Nickols et al. v. Mortgage Bankers Association.

The Supreme Court reversed the July 2013 appellate court decision that vacated the 2010 “administrator interpretation” that threw out the DOL’s position on the exempt status of mortgage loan officers and other employees in this far flung industry.  In that decision, the DC Circuit ruled that the DOL had to conduct notice-and-comment rule-making. The Supreme Court disagreed.

The Court stated that the “Paralyzed Veterans doctrine is contrary to the clear text of the Administrative Procedure Act’s (“APA”)  rule-making provisions, and it improperly imposes on agencies an obligation beyond the ‘maximum procedural requirements’ specified in the  APA.”  The DC Circuit utilized the Paralyzed Veterans to hold that any new DOL interpretation could only occur after the rule-making process, with notice-and-comment, had been engaged in.  The DOL contended that the DC Circuit decision impinged upon the flexibility that Congress wanted government agencies to possess.

The Supreme Court concluded that the text of the APA “clearly” stated that only if notice/hearing was required by statute did an agency have to abide by the notice/comment requirement, but other than that, it could issue “unilateral” interpretations.  Imposing such rules, the justices said, would violate “the very basic tenet of administrative law that agencies should be free to fashion their own rules of procedure.”

The Takeaway

Employers in the banking and mortgage industries must take special heed when classifying employees as exempt or not.  Many of the employees at issue work long hours (far in excess of the threshold forty for overtime) and many of them make “good money.”  As such, the potential for successful overtime lawsuits (e.g. class actions) is frightening.  Now that the Supreme Court has issued this ruling and upheld the DOL position, I urge such employers to seriously consider classifying all such employees as non-exempt and either pay them the overtime or limit them to forty hours per week (if this is, indeed, operationally or economically possible).

Payless Shoes Settles Another FLSA Executive Exemption Misclassification Suit

Posted in Class Actions, Exemptions, Overtime Issues

On the crest of the FLSA collective action wave that has swept the nation in recent years is the never-ending parade of exemption misclassification cases targeting Manager/Assistant Manager positions.  In yet another iteration of this phenomenon, Payless Shoesource Inc. has agreed to settle such a class action for just under $3,000,000.   The case is entitled Shallin et al v. Payless Shoesource, Inc. et al and was filed in federal court in Connecticut.

One-third of the settlement (a cool million) goes to the lawyers and the balance will be divided up among the almost 2200 class members who worked at Payless stores from March 2011 to the present.  The theory of the case was that the Company misclassified the Managers as exempt under the Fair Labor Standards Act.  The case began in March 2014 when former store managers filed the suit.  This is so often the pattern—a fired or separated employee starts an action and all of a sudden, in typical FLSA collective action style, it comes out that many (as herein, more than 2000) other employees are “similarly situated.”

The Complaint ran according to the usual format.  There were allegations of “purposeful” conduct, i.e. willful, designed to secure the third year on the statute of limitations.  There were allegations that the Company knew that the workers spent more than 50% of their time working the cash register, dealing with customers, cleaning the store and answering phones, all clearly non-exempt, rank-and-file duties.   As is also typical, the Complaint alleged that the Company saved inordinate amounts of money through this practice.  Indeed, the Complaint asserted that the “defendants’ unlawful pay practice saves them hundreds of millions of dollars.”  The Company hotly contested these allegations but chose to settle to save future litigation costs, without admitting any liability or wrongdoing.

The Company has endured similar suits previously.   Managerial employees in Mississippi some years ago filed suit on a misclassification theory, alleging that they were compelled to work 60-90 hours per week without overtime and the amount of non-exempt work they performed undermined their exempt status.  That case went away after the parties reached a confidential settlement.

The Takeaway

Given all this class action litigation on Manager exempt status, I am almost at a point where I want to advise clients that all Managers (and, certainly, at a minimum, Assistant Managers) should be classified as non-exempt, their hourly rates adjusted accordingly, to reflect their salaries and they get paid overtime when they work more than forty hours.  With that said, if an employer wants to preserve and be able to defend the exempt status of Managers, then these workers must be endowed (and not only in a Position Description) with managerial functions (e.g. hiring, firing) and paper trails must be laid down to reflect the actual exercise of those powers.

If that cannot be done effectively, then maybe the better approach is to classify them all as non-exempt and totally eliminate the risk of a successful FLSA suit.  I understand that, from an operations perspective, as well as a “perception” context, this is not an ideal course of action but on this matter, as in so many legal/business issues, there must be a balancing of the good and bad and spending hundreds of thousands of dollars defending and/or settling a FLSA collective action on this issue is, indeed, bad.

Plaintiff’s Counsel Wants To Depose His Own Client in FLSA Collective Action: Really?

Posted in Class Actions

This is great!  A FLSA collective action filed against an amusement park company.  A lead plaintiff and other plaintiffs added.  So far, so good.  Then, one of the lead plaintiffs settles independently with the employer and now the plaintiffs’ lawyer, this person’s lawyer (former lawyer) wants to depose his own client.  The company is strongly fighting what it contends is a “bizarre” bid and one “riddled with ethical landmines.”  The case is entitled Pilar Garcia et al. v. E.J. Amusements of NH Inc. and was filed in federal court in Massachusetts.

The Company argued that the plaintiff (Jennifer Merrill) reached a deal with the Company without her attorneys present and then requested that the lawyers dismiss her claims.  The Company stated that Merrill had not reneged on her agreement and the opposition has not pointed to any precedent or legal authority to show that it can depose Ms. Merrill under these circumstances.

The case was filed in June 2013 by the single named plaintiff, with Merrill and several other named plaintiffs later added.  The workers claimed that they were paid a flat rate for a forty hour week, but they claimed they “usually” worked 70-80 hours per week, much of it off-the-clock.  Their work involved the assembling/dismantling and operation of amusement park rides all over New England.  In papers filed with the court, the Company advised that Merrill settled “after growing weary of the slow pace of this action.”  The Company took pains to point out that Merrill herself instigated the negotiations and although the Company advised that she consult with her lawyers, she did not want to do so.

The Company contends that the possibility of a lawyer deposing his own client “runs contrary to fundamental principles of legal ethics.”  Obviously, the lawyers have confidential information about Merrill that they only secured through their representation of her.  There was a great likelihood that this confidential information would/could be used against Merrill at her deposition.  Thus, the Company argued that it would be improper for these lawyers to depose (i.e. cross-examine) Merrill for reasons adverse to her interests.

The Takeaway

Maybe because her lawyers did not act (in her mind) with sufficient alacrity in prosecuting the case was why Ms. Merrill settled.  That does not matter.  To me, this proposed action is one of desperation by plaintiff counsel.  I concur as well that, ethically, there are boulder-like problems and obstacles to allow this.  That should not, however, detract from the fundamental issue at stake here—whether these clearly non-exempt workers were compelled to work way beyond forty hours without overtime.

Skadden Case on Lawyer Overtime/Exempt Status Argued Before Second Circuit

Posted in Class Actions, Exemptions, Overtime Issues

I have been following this protracted saga for some time and there is another chapter now being written.  The law firm of Skadden Arps is being sued in a Fair Labor Standards Act collective action by lawyers claiming they were not doing legal work because all they did was document review.  In argument before the Second Circuit Court of Appeals, the firm argued that the theory that document review work was not “practicing law” was contradicted by the FLSA and, more importantly, common sense.  The case is entitled Lola v. Skadden Arps Meagher Slate & Flom LLP and was argued in the Second Circuit.

The federal district court dismissed the case in September 2014.   The district court Judge found that Lola was exempt from overtime under the professional exemption as a licensed attorney practicing law.  The plaintiff argued to the Court that “mechanical document review” was not the practice of law because he did not have to use his legal knowledge, skill or training.  Lola also contended that the district court erred by applying the definition of practicing law in North Carolina and urged that the Second Circuit to adopt a “federal definition” for what qualifies as the practice of law.

The FLSA professional exemption applies to any employee with a “valid license” and one who is “actually engaged in the practice thereof.”  The firm argued that neither the USDOL nor any other federal appellate court has sought to define what “practicing law” meant and contended that the definition of the practice of law in the jurisdiction where the work was performed should control.  The firm emphasized that the North Carolina State Bar has acknowledged that document review is legal work.

The firm noted that document review work is extremely important to a case and that a case could be dismissed if the document review work is done poorly or mistakenly.  The firm added, as a finishing touch, that attorney fees are given for document review work performed by such contract lawyers.

The Takeaway

I have always thought that the plaintiffs would lose.  I know that document review is important because it touches on issues of relevance and, more importantly, privilege, which only a “lawyer” would have the training and insight to make judgment calls on what is/is not privileged or relevant.  This case will have huge ramifications throughout the legal world because document review lawyers are used throughout the field.

My gut tells me that the saga is not to end with the Second Circuit ruling, whenever that may issue.  The US Supreme Court will, I imagine, ultimately get involved.