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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

Goin’ Hollywood: Independent Contractor Lawsuit Targets Freelance Producers

Posted in Class Actions, Independent Contractor

No industry or business is immune from the threat of a FLSA class action.  Proof of this premise is found in the certification of a class of dozens of freelance content producers who allege that the parent entity of the Hollywood Reporter denied them overtime by misclassifying the workers as independent contractors.  The primary allegation is that this misclassification denies the class members the proper payment of overtime.  The case is entitled Simpson v. Prometheus Global Media LLC and was filed in the Superior Court in California, the County of Los Angeles.

The Judge certified a class of 43 freelancers who worked at Prometheus from January 2010 up to today.  She included those paid hourly or on a day rate and who were given office space, a computer, a company email account and a dedicated phone line. The Court emphasized that the misclassification issue was central, but she also certified the class on the claims involving overtime, missed rest and meal breaks, as these were all derivative from the fact that the people were or were not “employees.”  The Court also found that the standards set forth in the U.S. Supreme Court opinion of Ayala v. Antelope Valley Newspapers were met, as the people could point to a common policy.

The defendant argued that just because the defendant provided a list of names did not mean that a class was appropriate or certifiable.  She contended that the plaintiffs failed to show any evidence supporting the allegation that class members will be able to identify themselves on that list.  The defendant also argued that the class did not have a sufficient community of interest, because the freelancers did myriad different jobs, requiring different skills, and that a trial would be unmanageable due to needing an unreasonable number of class representatives for so small a “class.”   In sum, too much individualized scrutiny was necessary and thus no class was cognizable.

The Court disagreed, finding that what the freelancers did was integral to the publication of the newspaper, which was the business reason for the existence of the Company.

The Takeaway

The Court concluded that the roles performed by the freelancers were in fact a “principal contribution to the business of putting out a newspaper.”  This is in line with the emphasis in the recently issued USDOL Interpretation on this subject, which focused on the “integration” element.  It is usually (or, heaven forbid, only) when the contractor or consultant at issue is doing something so utterly far removed from the main business of the company that no gray area exists.  That, however, may defeat the entire reason for utilizing such people.

Another Uber Independent Contractor Class Action—Reaching Critical Mass?

Posted in Independent Contractor

I posted recently about a lawsuit involving Uber and independent contractors.  Well, it’s happened again.  The company was hit with a proposed class action suit in Pennsylvania state court with a central allegation being the drivers’ claim that they were misclassified as independent contractors.  The case is entitled DiNofa v. Uber Technologies Inc. et al., and was filed in the Court of Common Pleas of Philadelphia County.

The complaint alleges that the misclassification caused drivers to be undercompensated and not reimbursed for expenses.  The named plaintiff alleged an employer-employee relationship existed and that the Company “exerts significant control over its drivers.”   This control was evidenced by the training given on how to deal with customers, the unilateral setting of fares and requiring that drivers maintain a rating from riders of 4.5 out of five possible stars.  The Complaint alleges that “if a driver fails to maintain an average customer rating of 4.5, Uber will deactivate his or her ability to use the application to pick up customers, an action tantamount to terminating the driver ‘at will,’ a hallmark of an employee-employer relationship.”

Uber is currently facing two class actions in California federal court over the classification issue under the Fair Labor Standards Act.  The drivers there were certified as a class when the Judge found a tension between the Company’s defense that there were properly classified as independent contractors with the defense that the drivers’ experiences with Uber were too disparate to allow certification.

The Company contends that the drivers are in their own businesses and 87% of them drive because they “they love being their own boss.”  The Company maintains that if they were employees, they would be paid hourly, drive assigned shifts and lose the flexibility that they cherish.  Thus, these people are independent contractors because they are not controlled and they are in an independently established business.

The Takeaway

The number of lawsuits facing Uber is a “sign of the times.”  Given the new USDOL initiative seeking to be overly inclusive on the “employee” side, it is getting (and has gotten) very difficult to maintain and sustain true, actual independent contractor or “consultant” type arrangements.

On this case, I do believe these folks are in their own businesses, which is a crucial necessity for a showing of independent contractor status, under any statute in any jurisdiction.  The seeming control elements bother me, however, unless a business related or, better, customer relations reason for exercising this ostensible control exists.

Comments on DOL Exemption Proposals Illustrate Great Divide

Posted in Exemptions, Overtime Issues

The 60-day comment period closed on September 4, 2015 for the USDOL’s proposed (and for employers, controversial) overtime changes.  There were an amazing 250,000 comments submitted and this highlights the chasm between the commenters and the fear felt by employers who dread that their businesses will be hurt (or buried) by the proposed changes.  Other commenters maintain the changes will facilitate more equal and proper payment for many workers.

Support for expanding overtime eligibility comes from nonprofits, individual workers, some human resources professionals and some organizations, although some nonprofits join universities, businesses and trade associations in highlighting the potential problems associated with raising the minimum salary threshold required to qualify for the Fair Labor Standards Act’s “white collar” exemption to $50,440 per year.

The DOL is also proposing automatically updating that salary threshold in order to stop it from becoming outdated as time passes between rulemakings.  In the rule’s first year, an estimated 4.6 million exempt workers who make at least $455 weekly but fall short of the 40th earnings percentile would become entitled to minimum wage and overtime protections, unless their salaries were substantially raised.

Among detractors, one of the most commonly articulated concerns was that the proposed changes do not account for the diverse economies across the country.  One commenter recommended consideration of market differences in determining the minimum salary threshold, as the labor market rates in the Midwest are very different from the coasts, due to the cost of living differences.

Others asserted that the changes would require employers to make drastic changes to their staffing, including perhaps reducing the number of employees, changing employee status to part time, eliminating positions, changing duties and positions to hourly classifications.

Some commenters urged that the salary threshold should include bonuses and commissions when determining whether an individual meets the salary threshold.  There should also be an effective date of at least one year out, so that employers may prepare for these changes following publication of the final rule.

Some commenters took issue with the proposal to establish a bright line, i.e. 50% for the performance of exempt work in order to qualify for the exemption.  One commenter opined that “performing hands-on work at the manager’s own discretion to ensure that operations are successfully run in no way compromises the fact the manager’s most important responsibility is performing exempt work.”  An opposing commenter contended that the proposed rule would stop companies from dodging their overtime obligations by misclassifying workers as managers or executives and that “HR departments will have no major difficulty in implementing the change.”

The Takeaway

The end result of these initiatives will probably be a compromise on the salary.  What is of more concern to me is if the agency imposes a minimum numerical threshold for the performance of exempt work.  How will that be measured or quantified?  I don’t know and I wonder if the agency knows or if it will establish parameters or guidelines for doing so.

Time will tell…

A (Potentially) Big Time FLSA Blackberry Case Goes To Trial

Posted in Class Actions, Overtime Issues, Working Time

This has been a protracted lawsuit; I have used this case (for some years now) as an example when I give seminars on working time and these so-called “email cases.” There has been a geometric explosion of cases over the last decade or so under the Fair Labor Standards Act based on a theory that off-duty, off premises use of emails and PDAs is compensable work.

The City of Chicago has been fighting a huge class action on this issue and the case recently went to trial. The plaintiff’s attorney said, in his opening, that the Chicago Police Department Bureau of Organized Crime (“Bureau”) maintained an unwritten policy of mandating that rank-and-file officers had to be constantly vigilant for important emails and other communications that could be transmitted over their department-issued smartphones. The plaintiffs allege that although the plaintiffs supposedly received about one-hundred emails every day and spent hours on the phone when their shifts were done, they were never reimbursed for this “work time.” The case is entitled Allen v. City of Chicago and was filed in federal court in the Northern District of Illinois.

The Bureau defended by asserting that two written memoranda issued in 2010 and 2013 specifically advised the police officers that they were not required to carry their Blackberries off duty unless they were specifically directed to do so by a supervisor. The City also contended that it did not have a policy of requiring officers to check Blackberries off duty without pay and that officers who did so and submitted overtime request forms for that time were, in fact, paid for the time. The lawyer stated that “those slips always have been approved.” The defense attorney also noted that not one of these unionized employees had ever filed a grievance over such alleged non-payment.

The attorney also suggested that some officers might have been confused by a departmental mandate that the officers maintain an emergency number on file in case they are needed in a hurry. On that note, some officers listed their Blackberry numbers as these emergency numbers, but if there was an emergency, the officer would be telephoned and not receive an email.

The Takeaway

This case, which has dragged on for five years, is an important one because it may shed light on the parameters of when such time is/is not compensable. This is crucial because more and more (e.g. thousands and thousands) of non-exempt workers are given company Blackberries or PDAs and may be ordered, explicitly, or, more troubling, implicitly, to check emails off-duty and respond to them.

It is the element of employer compulsion that breaks the case for the employer and (virtually) ensures success for the plaintiffs. The employer here got out in front of this (I believe) with the two memoranda and also (if true) the fact that employees were paid if they used their Blackberries and put in for the time. By being proactive and informing the affected employees, up front, what the policy and procedures were, this employer has put itself in the best position to successfully withstand the suit.

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.