Wage & Hour - Development & Highlights : New Jersey Labor and Employment Lawyer & Attorney : Fox Rothschild LLP Law Firm : Serving Essex County, Sussex County, Roseland, New Jersey

Five years ago, the Class Action Fair Act (“CAFA”) was enacted to deal with the onslaught of class action cases and to ensure, if I may say, fairness in the manner in which these cases were litigated but it appears that the ever active and creative plaintiffs bar is coming up with new ways to allow cases to remain in state court, rather than going to federal court where perhaps they feel or believe that the chances of winning are slimmer.  Defense counsel must adjust and adapt, quickly.

What some plaintiff counsel are doing is structuring and narrowing their Complaints so they can circumvent the jurisdictional diversity that the law mandates be applied. The fact is that CAFA was enacted to prevent abuse of the class action procedure/device.  The law eased the rules for establishing diversity jurisdiction so plaintiff lawyers could not engage in ting forum-shopping and lodge their suits in what they believed were states friendly to the plaintiff’s side. In this manner, defendants were able more facilely to remove cases to the federal courts.

The trick that has been discovered is to plead the case quite narrowly, in a real focused manner. For example, if the case is filed for less than one-hundred plaintiffs and damages of less than five million dollars are sought, the lawyers may be able to salvage keeping the case in state court, which they may perceive as a tactical advantage or may, in fact, be a tactical advantage.   In this analysis, the particular venue and/or the particular judge that preside over the case.

Often, class action cases settle. Rarely do they go to trial, given the enormous risks for the employer, i.e. fee-shifting, as well as for plaintiffs and their lawyers, who stand to realize nothing from a case if the class action motion is defeated or the case falls on the merits, e.g. employees found exempt, as a class.  Thus, there is much machination to get a case before the “right” judge who may broker. Whether with heavy hand or not, a settlement.

A recent, illustrative example. In a 2008 case involving Abbott Laboratories, a federal judge in the Eastern District of Tennessee ruled that the plaintiffs were trying to evade the dictates of CAFA by filing eleven class action Complaints, which mirrored each other, except that the period of time for which recovery was sought was different for each  “class.”   The various complaints defined the class period as various one-year periods ranging from 1990-2008.

However, each of the discrete Complaints included contentions relating to the entire reach of the charged conspiracy for all of the separate time periods in the ten years at issue.  The judge held that these artificial time demarcations were an attempt to ensure that the damages in each case were less than five million dollars, in order to circumvent CAFA. Essentially, he found that the plaintiffs were “gerrymandering” the cases to avoid the application of the CAFA.

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The US Department of Labor has resolved a legal action against a Texas company, Flour Enterprises Inc. for its failure to pay relief workers who participated in the Katrina clean up and rehabilitation efforts. The company will pay one million dollars to 154 workers. The case is entitled Solis v. Universal Project Mgmt., Inc., and was filed in the Southern District of Texas.

The DOL had also secured a default judgment against another Houston, Texas company for wages due workers which arose from the same investigation. That case is entitled Solis v. Universal Project Mgmt., Inc., and was filed in the same federal court..

Fluor, an engineering and construction firm, functioned as the General Contractor when it contracted with the Federal Emergency Management Agency after the devastation caused by Hurricane Katrina.  In turn, Fluor Enterprises subcontracted the work of inspecting trailers for the displaced people who were left homeless by the disaster to Universal Project Management.

The field investigation conducted by the DOL revealed that the companies did not pay time and one-half overtime, but rather (and against the law) paid only straight time for overtime hours.  A DOL official explained that “some employees involved in the inspection of trailers during the hurricane recovery worked up to 84 hours in a week without the required overtime compensation for hours worked over 40 in a workweek.”.

The Secretary of Labor observed that “workers who help rebuild our communities and secure the safety of local residents following natural disasters should be fairly and legally compensated for the work they perform.”

It is shameful that these employers should disregard such a basic tenet of wage-hour law, i.e. paying proper overtime, especially to workers who were likely not earning that high of an hourly wage to begin with. The mind boggles. I often take issue with Departments of Labor when defending/representing clients, but I applaud this use of the agency’s investigative and enforcement powers.
 

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The electronic giant, Best Buy, has requested that a judge approve a $900,000 settlement in a New York State wage-hour class action in which the plaintiffs sought payment for time worked “off-the-clock.”  That working time was the minutes spent going through security clearings at the end of the work day, assumedly to ensure that employees did not steal anything during their shifts.  The case is entitled Turner v. Best Buy Company, Inc.

Although the case was filed in state court, the employer had removed the case to federal court under the Class Action Fairness Act of 2005.  After going through a great deal of discovery, the parties decided to settle the action, although they maintained their respective positions.  The company maintained that it properly paid all employees for all time worked, while plaintiffs took the view that going through the security check was an employer instigated “activity” that required compensation.

Interestingly, and significantly, the employer has agreed to modify its operating procedures to allow all employees to remain on the clock until their manager allows them to leave the store.  Thus, although the employer denied any culpability, the remedial action it took suggests that it knew that there was an issue here.

The key to determining whether preliminary or postliminary activities are compensable is the element of employer compulsion or the lack thereof.  I equate this activity to the employer ordering a retail cashier to report ten minutes early to balance out the cash drawer or to stay ten minutes after the shift ends to do the same.  It is a safe bet that where employer ordering, or direction or compulsion of an activity related to the main job is involved, the activity is working time and compensable.  The other benchmark is how integrally related to the main job is the side activity.

I have often commented on these preliminary and postliminary issues.  They are a real danger to the employer because oftentimes, the employer may not even appreciate that this “little” activity or routine or inconvenience to employees is actually “work,” which can then lead to a single employee filing an action (as was done here) and everybody else coming on board.  The proactive approach is to analyze every non-exempt job and ascertain if there are preliminary or postliminary activities involved or related to it and then apply the above-referenced analysis and make the call on whether it is or is not working time.
 

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The Second Circuit Court of Appeals has reversed a lower court and held that a regional director of advertising sales for the Elite Traveler magazine was non-exempt under the Fair Labor Standards Act. The Court rejected the contention that the employee fell within the administrative exemption. The case is entitled Reiseck v. Universal Communications of Miami Inc.

In the 1990s, there was a rash of cases involving inside sales people and whether they fit within the administrative exemption. Courts have held that such employees are “white collar production employees” in that they are really only “producing” the goods of the employer and not engaging in the ancillary, back-office kinds of duties that are deemed administrative under the FLSA. In this case, the Second Circuit continued that line of reasoning.

The Court found that as the primary duty of the employee was selling advertisements to individual customers and not promoting sales generally, the employee was only a producer, not an administrative employee.

The magazine was free and thus advertising sales made up the predominant component of its revenue. There were salespeople who sold advertising space and, significantly, a marketing staff that was charged with the primary function of creating promotional material to increase advertising sales. The Court determined that the employee was not involved with the market creation work, as she was selling specific advertising space and advertising sales were a critical source of revenue, the Court therefore concluded that advertising space was the Company’s “product.”

As the employee’s primary duty was the sale of that product, she was a sales employee, not an administrative employee. This was the Court’s conclusion notwithstanding that there was evidence that Ms. Reiseck developed new clients with the goal of increasing advertising sales generally. Her primary duty remained selling specific advertising space to clients.

I have often commented on the grayness of the administrative exemption. There is a continuing, if you will, eternal, tension between whether an employee is merely producing goods (whatever those good may be) or is performing the more esoteric duties that support and comprise the business. Those duties are administrative, but precise definitions are difficult to come by. Fair warning to the employer----if you choose the administrative exemption, be prepared to defend it (probably in court).
 

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In a January 21, 2010 posting in the New York Labor and Employment Law Report, Joseph Dole reported on a case entitled Young v Cooper Cameron Corporation, recently issued by the Second Circuit.  The case concerned the applicability of the professional exemption to an individual performing engineering design work on sophisticated equipment.  While he had twenty years of experience, he only had a high-school degree.  The court ruled that the employer incorrectly classified him as exempt.

 The issue rose and fell on the absence of a college or higher degree in a specialized field of training.  To me, this is the completely wrong result.  The proposed new professional regulations had sought to allow a claim of professional exemption even without the "degree," if experience and education were deemed to fit the exemption.

The final regulations stepped back from this and hearkened back to the old tests.  They do leave a crack open, attesting that there is the "possibility" that an individual may fit the professional exemption as an attorney, for example, even if he did not go to law school, like, for example, Supreme Court Justice William O. Douglas.  The regulations, however, envision this as a one in a million occurrence and I think, especially in the computer and technology fields,. experience of a professional nature is often supplanting the straight, "pure" education.

In fact, I understand that Bill Gates did not finish college.  Under the rationale of this case and the current FLSA regulations, this billionaire would be found to be non-exempt and entitled to overtime. 

Funny, ain't' it?

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A federal judge has agreed to a settlement between the parties in a Fair Labor Standards Act (“FLSA”) collective action where a group of former employees sued the employer, a cement company, for overtime. The case, filed in federal court in Florida, is entitled Webster v. Cemex Inc.

Interestingly, the lead plaintiff, Timothy Webster, will recover only $2,600. Payments to the other class members have not been disclosed. The basis of the suit was that the Company paid the drivers by the delivery and did not pay overtime when the actual work hours exceeded forty (40).  The plaintiffs sought compensation for unpaid overtime for three years (seeking a willfulness finding) as well as liquidated damages and attorneys’ fees.

Although the Company asserted it had strong defenses against the claim, it settled this case, which had been consolidated with a second FLSA action against Cemex; that action was also lodged by drivers.

The issue comes back to exemption status.  If the drivers were non-exempt, they were entitled to overtime when they worked more than forty hours.  There is a computational formula built into the FLSA for determining how to compute overtime to workers paid by the delivery, or by the “stop” or on a commission basis, or a day rate, or any other form of compensation.  Ultimately, the employer must figure out the regular rate and then determine the overtime.

These drivers might or might not have fit within the motor carrier exemption, but likely no other exemption, certainly not the white collar exemptions as they were not paid a salary.  The lesson for employers is simple----absent an applicable exemption, all workers are entitled to overtime, regardless of the applicable computational methodology.
 

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If the economy rebounds in 2010, employees will be looking for enhanced raises to offset the dismal or non-existent raises of 2009.  If the economy does not rebound, employers will be faced with tough decisions and even tougher conversations with their employees concerning this lack of increases.

There are legal pitfalls to be avoided in making these decisions and having these (often difficult) talks.  Learn how to manage worker expectations, realistic or otherwise,  interact with employees who are not getting hoped-for raises and, most importantly, what legal issues (e.g. discrimination?) inform these decisions and discussions.

Come join me in a webinair I am conducting on January 27, 2010 from 1:30-3PM, EST, where these issues will be examined.  The registration link is:

hrtrainingcenter.com/showWCDetails.asp

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In a recent posting in the Connecticut Employment Law blog,  http://www.ctemploymentlawblog.com/2009/12/articles/wage-and-hour/a-dollar-here-35-mi Steve Lavelle wrote about a recent case in involving the exemption status of Store Managers for Family Dollar Stores.  The evidence showed that the employees rarely, if ever, discharged managerial duties and spent the vast amount of their time in performing duties identical to subordinates and thus their classification as exempt from overtime was erroneous.  He warns that the employer must always be be vigilant about properly classifying employees as exempt or non-exempt.  

I have often advised clients that, sometimes, it is safer to treat titles such as Assistant Manager as non-exempt, from the outset.  Pay them hourly and time and one-half OT, but compute, or "back into" the proper hourly rate by determining the number of hours that will be routinely worked (e.g. 45, 50) in given weeks.  In such a manner, the exempt/non-exempt issue never becomes an issue.

The other option for employers is to enhance the actual job duties of these and similarly titled employees so that they do, insofar as possible, exercise managerial functions (e.g. hiring, firing, input into raise/promotions).  This is harder to do, takes significant managerial oversight and must be monitored.  It can be done, however, and then the person or persons will truly be exempt, whether under the Fair Labor Standards Act or any state wage-hour law.

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Law firms are usually defending clients in wage-hour suits where the allegation is that the employee claims he/she has been misclassified as exempt when they are really not and are due overtime. But, law firms themselves must be diligent about properly classifying their own employees, especially when they categorize employees exempt under the administrative exemption. This is the lesson being learned by the so-called boutique intellectual property law firm of Turocy & Watson LLP, where a legal secretary has filed a class action, charging that the firm did not properly pay the “class” of secretaries overtime.

The case is docketed as Osolin v. Turocy & Watson, LLP et al filed in federal court in the Northern District of Ohio and charges a violation of the Fair Labor Standards Act.. The plaintiff believes there are approximately 30 legal secretaries in the class. All of these secretaries were paid a salary and were allegedly misclassified as exempt.

The complaint alleges that none of the plaintiffs did any managerial work or directed the work of employees, or had authority to hire and fire. Under that factual predicate, the plaintiffs would not fit within the executive exemption, but the firm will likely defend on the basis that they are administrative employees. As I have often warned, this is the most difficult exemption to prove and if the facts show that the secretaries performed secretarial, clerical work the majority of the time, this exemption will not be available as it will founder on the “discretion and independent judgment” element.

It is highly doubtful that the firm could show they were professional employees, even if the employees were given the moniker “paralegal,” as paralegals are explicitly deemed non-exempt under the federal regulations.

The burden of proof is always on the employer in an exemption case. This behooves employers, law firms or otherwise, to make reasoned, defensible exemption determinations and classifications at the time of hire, because it only takes a single plaintiff to start a world of trouble. In sum, these lawyers need a lawyer.
 

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