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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

Taking a Bite out of Attorney’s Fees in FLSA Settlements

Posted in Uncategorized

FLSA lawsuits are exploding – on nationwide basis annual FLSA filings have increased more than 400% since 2001.  The vast majority of these actions ultimately result in a settlement. The question has now been raised as to whether the FLSA settlements can result in an overpayment of class counsel providing them with “more than a fair day’s pay for a fair day’s work.”  Recognizing the unique circumstances under which FLSA settlements are negotiated and structured, Southern District Judge William Pauley has raised this question while significantly slashing the FLSA class counsel fees in one recent settlement.  See Fujiwara v Sushi Yasuda Ltd, 12-cv-8742.

The Courts have found that when cases settle, the adversarial process between counsel often  melts away.  With this in mind, Judge Pauley observed that once an FLSA settlement figure has been established, settling defendants tend to lose interest in how the settlement monies are distributed, and thus a natural tension arises between plaintiffs’ counsel and the class they represent.  Indeed, after reviewing the proposed settlement agreement in Fujiwara Judge Pauley was struck by the “extreme similarities in the wording of several decisions” relied on by Plaintiffs’ counsel to support their fee application.  The Judge discovered that many of the authorities cited by Plaintiffs’ counsel were the “proposed orders drafted by the class action plaintiffs’ bar and entered with minimal, if any, edits by judges.”  Thus, Judge Pauley concluded that “the vacuum created by proposed FLSA class action settlements has permitted plaintiffs’ attorneys to write much of the law on what constitutes a reasonable attorney’s fee.”  Accordingly, the Judge cautioned that “little precedential value” should be given to the proposed orders drafted by counsel, which make findings of fact and conclusions of law that award counsel their own fees.

The Fujiwara case achieved a settlement of $2.4 million, and the initial proposed settlement sought one-third of this amount, $800,000.00, in fees and costs to Plaintiff’s counsel.  While  Judge Pauley lauded the work performed by class counsel, and noted that they billed fewer than 650 hours on this matter, the Judge was wary of granting such a high amount of fees.  Given the unique circumstances of FLSA class settlements, Judge Pauley explained that “it is the judges alone who are left to safeguard the interests of the class.”  With that in mind Judge Pauley reduced the award of counsel fees and costs from $800,000.00 to $500,020.18.

Thus, in structuring FLSA settlements counsel need to be aware of the potentially heightened judicial scrutiny to ensure that class counsel do not receive inflated fees at the cost of the class they represent.   Ultimately, FLSA settlements will need to trim attorney’s fees to ensure judicial approval.

New Jersey Supreme Court Set to Rule on Definition of “Independent Contractor”

Posted in Independent Contractor

The New Jersey Supreme Court will soon resolve the issue of who is and is not an independent contractor status under state wage-hour law. I discuss the Sleepy’s case in an article just published by the Washington Legal Foundation:

New Jersey Supreme Court Set to Rule on Definition of “Independent Contractor”

What is Off-the-Clock Work?

Posted in Uncategorized

Off-the-clock work is a common issue that often is the basis for class action wage claims.  Put simply, federal and state laws require that workers get paid for the time they “work.”  Generally, hours worked includes all time an employee must be on duty, or on the employer’s premises or at any other prescribed place of work.  Also included is any additional time the employee is allowed (i.e., suffered or permitted) to work.  “Suffer or permit to work” means that if an employer requires or allows employees to work, the time spent is generally hours worked.

Time spent doing work not requested by the employer, but still allowed, is generally hours worked, since the employer knows or has reason to believe that the employees are continuing to work and the employer is benefiting from the work being done.  This time is commonly referred to as “off-the-clock work” and is prohibited …AKA illegal.

Unfortunately, off-the-clock work is not uncommon.  Earlier this week, a California court approved an employer’s agreement to pay $1.5 million to settle claims that it forced a class of 15,000 employees to do off-the-clock work at dozens of its supermarkets.

The class suits alleged that the stores forced employees to work off the clock, failed to pay them on wages worked and failed to provide state-mandated rest and meal breaks.  These issues are too, not uncommon.  Employers must have proper policies in place where employees are clocking-in prior to performing any “work.”  Employers must also ensure that they are providing state-mandated rest and meal breaks.

The California Cases are Jose Chavez v. Vallarta Food Enterprises Inc. and Gabriela Garcia v. Vallarta Food Enterprises Inc. et al., case numbers BC490630 and BC490873 in the Superior Court of the State of California for the County of Los Angeles.

Intern-Employee FLSA Case Dismissed Because Clinical Experience Is Not “Work”

Posted in Working Time

In Atkins v Capri Training Center, in the District of New Jersey, Judge Susan Wigenton considered a Motion to Conditionally Certify a Collective Action. Capri was a for-profit corporation that included beauty schools. Atkins attended one of the schools owned by Capri. While she was a student, Atkins worked at the Clinic in Clifton, NJ, and provided services for paying customers in an effort to satisfy her statutorily required clinical training for a license in cosmetology. Atkins also performed janitorial and clerical functions that were essential to the Clinic’s operation.

She alleged that she and other students performing similar tasks were considered “employees” under the Fair Labor Standards Act (“FLSA”) and were therefore entitled to wages. She moved for conditional certification and to be allowed to send notice to potential class members.

To obtain a license to practice cosmetology or hairstyling, an individual must attend a licensed beauty school and perform work in a clinical setting. This clinical setting is a portion of a licensed school in which members of the general public receive cosmetology services from registered students for a fee (used to recoup only the cost of materials used in the services). The Students receive credits towards graduation, and ultimately, licensure in cosmetology.

Plaintiff alleged that she was an employee under the FLSA because: (1) Capri was “a for-profit enterprise where the Plaintiff’s labor was essential” to its operation; and, (2) the Clinic actually made a profit. The court rejected these contentions, finding that profitability alone, or lack thereof, was not determinative when assessing the existence of an employer/employee relationship. The Plaintiff also argued that she should be considered an “employee” because Capri, not herself, was the primary beneficiary of her labor, basing this contention on the fact she had to perform janitorial and clerical work. The court found this contention unpersuasive. The purpose of the Clinic was to mimic a real beauty salon. The clinical program allowed students to train under a professional and gain the needed experience and skills.

The Judge concluded that the Plaintiff was not an “employee.” She was not dependent upon Capri for either her livelihood or continued employment and she trained at the Clinic with the understanding that the relationship was temporary. The economic reality of the situation showed that Plaintiff was merely a student trainee who was required, by statute, to hone her soon-to-be professional skills at a clinic.

Maybe this starts a reverse trend in these intern cases, of which there has been a disturbing abundance of.

Motion To Dismiss FLSA Collective Action On Pleadings Fails: An Interesting Tactic

Posted in Overtime Issues, Working Time

Necessity is the mother of invention…

In Naider v. A-1 Limousine, (Dkt. No 14-2212, October 8, 2014), a case filed in federal court in New Jersey, the defendant attempted to preempt a FLSA collective action by filing a motion to dismiss very early on in the case. The defendant asserted that the Plaintiff had failed to sufficiently plead a valid collective action under the FLSA because the Plaintiff did not make substantial allegations that other employees were treated similarly. USDJ Wolfson denied the motion.

The plaintiff was a limousine driver and there were other drivers who performed similar job functions as Plaintiff. The Plaintiff alleged that he and other drivers routinely worked in excess of 40 hours a week, but were compensated by the same hourly rate for all hours worked, regardless of whether any of those hours were overtime. The plaintiff asserted that although he and other drivers received additional compensation in the form of so-called “gratuities,” these gratuities were not FLSA tips, because Defendant charged them as flat fees/service charges that were not given at the discretion of the customers.

Although Plaintiff had not moved for an initial certification of the collective action, Defendant sought to preemptively strike the collective action claims based on insufficient pleadings. The Court rejected that initiative, finding that the Plaintiff had made sufficient factual allegations, which, when assessed in the context of a motion to dismiss, stated a possible collective action. Importantly, Plaintiff alleged that many policies were in violation of the FLSA — no overtime and the use of flat fees/service charges as de facto gratuities. The Plaintiff argued that these practices applied to all similarly situated employees.

The Defendant did not dispute that Plaintiff was subjected to the alleged practices, but argued that the Complaint lacked any substantial allegations that these practices applied to similarly situated employees. However, at this juncture, based on Plaintiff’s pleadings, the Court ruled it was reasonable to infer that all drivers were treated similarly. Accordingly, the allegations were more than mere “speculation” and there could reasonably be, in fact other similarly situated employees.

It was worth a try.

Lawyer FLSA Overtime Cases Proceeding Through the Pipeline

Posted in Overtime Issues

The saga continues…

The law firm of Quinn Emanuel Urquhart & Sullivan LLP has recently fired another salvo in its bid to defeat the class and collective action filed against it, based on a theory that temporary lawyers were not doing “professional” or “attorney” work and were therefore non-exempt. The firm filed a a short notice seeking judgment and had sent a supporting memorandum of law to USDJ Abrams pursuant to an individual practice rule “concerning redactions and filing under seal.” The case is entitled Hening v Quinn Emanuel Urquhart & Sullivan LLP et al.

The law firm previously sought (in December 2013) to have the case dismissed relying on the FLSA professional exemption, but Judge Abrams refused to dismiss the suit, concluding that it was “not implausible that Henig engaged in something other than the practice of law.” The plaintiff had argued that his work was “extremely routine” and did not require any exercise or utilization of “legal knowledge and/or judgment in performing his job duties…”

A similar case filed against Skadden Arps had been dismissed and is being appealed by the plaintiff to the Second Circuit. Obviously, and quite appropriately, the outcome of that case will be (probably) dispositive of the Quinn dispute, unless there are significant factual differences.

On that note, and but yesterday, Judge Abrams ruled that he would not decide the case before him, pending the Second Circuit Skadden decision. This was done pursuant to the plaintiff’s request to stay.

The consolidation is appropriate. I still adhere to my earlier conclusion—the defendant law firms will prevail.

Only more so…

Revisions to DOL Exemption Rules on Hold

Posted in Exemptions, Overtime Issues

We have been waiting and waiting…

The USDOL has been tasked with revising the Fair Labor Standards Act (“FLSA”) white collar exemptions, but evidently these revisions will not be ready by the (initial) November 2014 deadline. The Solicitor of Labor M. Patricia Smith has stated that she anticipates they will be presented early in 2015.

Several months ago, the President instructed the Secretary of Labor to “modernize and streamline” the current overtime regulations, which were just revised in August 2004, which, in the world of law, is but a moment ago. The Administration had concluded that, as millions of Americans are ostensibly not eligible for overtime under these 2004 regulations, the current regulations are “already” outmoded and the rules need to be made stricter, to allow more overtime coverage for more workers.

Plaintiff lawyers will likely view this as an untoward development. The delay might cause some people to still remain “improperly” classified in their view. One plaintiff lawyer stated that “in the long run, the content matters more than the timing” and that it was “important that the changes be made and that they be effective, so we’re looking forward to seeing what the amendments actually accomplish.”

One extension of the overtime rules that is occurring is the extension of the minimum wage and overtime protections of the FLSA to in-home workers who provide care for aged, sick and disabled individuals. It is anticipated that this extension will give up to two million such workers (in a burgeoning industry) these rights and protections. In addition to raising wages, this modification, in the agency’s eyes, will hopefully attract more workers to the field.

I await with eagerness the new exemption rules. Hopefully the new regulations will dispose of the “discretion and independent judgment” component of the administrative exemption, which makes it pretty hard, right now, to categorize workers as “administrative employees.”

I bet they won’t…

New York City’s “Living Wage” Expands

Posted in Prevailing Wage

Small business owners now have additional wage and hour concerns that need to be addressed in deciding where to open for business in New York City.  The minimum wage could be higher right across the street.

On Tuesday, September 30th, New York City Mayor Bill de Blasio signed an Executive Order which expands the “living wage” requirements for real estate projects that receive $1 million or more in New York City subsidies.  Previously, only direct recipients of City subsidies in excess of $1 million had to pay the “living wage” to their employees.  The September 30th Executive Order greatly expands this requirement beyond the direct recipients.  Now tenants, subtenants, leaseholders, subleaseholders, and concessionaires of buildings/properties that receive at least $ 1 million in City subsidies on or after September 30, 2014 will also have to pay the “living wage” to their employees.   The Executive Order does not impact buildings/properties that received such subsidies prior to September 30, 2014.  Further, the executive Order will also not apply to certain residential properties that provide 75 or more “affordable units,” manufacturers, or businesses with less than $3 million in gross income.

Businesses that take space in subsidized buildings/properties will now be required to pay a minimum wage of $13.13 per hour for employees who are not offered health care, and $11.90 for employees that are offered health care.   These wage levels are expected to increase every year.  This Executive Order will have the greatest impact on restaurants, bars and retailers that take space in the major developments substantially raising labor costs for such businesses which have a large number of minimum-wage or near-minimum wage employees.  Moreover, the regulation permits private causes of action, which can include punitive damage awards and attorney’s fees, against businesses that violate these higher minimum wage requirements.

The Executive Order creates significant concerns as to how the order’s directives will be implemented.  Oversight of the implementation will be handled by the Department of Consumer Affairs, whose mission and training has not been in labor relations, wages or the workplace.  These concerns include how prospective tenants will be placed on notice of the new increased wage requirements, who will be responsible for violations of the regulation, and how does this regulation impact other labor issues such as tip and meal credits, which are currently permitted under federal and state law, and collective bargaining agreements.

As a result of this new Executive Order, small businesses will again be asked to bear heavier and heavier burdens.  The small business owner will now need to think long and hard about where to open for business in New York City.  Thus, giving new meaning to the familiar real estate mantra: location, location, location.

Arbitration of Overtime Claim Against Exxon Ordered Because Contract Interpretation Necessary

Posted in Overtime Issues

Arbitrate or litigate? Like everything else in the law, it depends…

Whether a claim for overtime should be arbitrated rather than fought out in court depends on whether the claim necessitates examination and interpretation of the labor contract. Under well-established legal principles, workers have an independent right to sue in court, rather than arbitrate, but if the employer successfully argues that contract interpretation is required, the lawsuit is preempted by labor law and arbitration ensues.

Indeed, I believe most employers that I deal with would rather be in arbitration than a full-blown FLSA litigation involving claims for overtime, but in a case entitled Independent Laboratory Employees’ Union Inc. v. ExxonMobil Research & Engineering Co., the Company argued that arbitration was inappropriate. A New Jersey District Court judge disagreed, holding that the grievances seeking compensation for travel time to/from job-related conferences did fall under the aegis of the parties’ labor contract.

The judge stated that “the question presented by the ILEU is whether travel time is included in those circumstances. This is an issue that requires interpretation of the CBA, and particularly in light of the broad language of the arbitration clause, is a matter which falls within the zone of interests receiving protection under the CBA.” The company defended by asserting there was no explicit reference to travel time in the labor contract and thus there was no obligation to arbitrate; the Union then moved to compel arbitration.

The Takeaway

I am somewhat surprised. I have been faced with this situation a few times and I have been the one, on behalf of a client, to argue that arbitration was required, rather than allowing a FLSA lawsuit (with its fee shifting component, doubling of damages and possible extra year of liability) to proceed. In arbitration, the Company, in addition to having the “usual” FLSA defenses (i.e. the travel time was not working time) will also have any contractual defenses it can muster.

To the Union—-Don’t wish for something because you just may get it!

Off-the-Clock Security Checks

Posted in Uncategorized

There are some interesting cases going on right now about whether employees who work in electronic retail stores need to be paid for the time they spend waiting to get their bags checked when they clock in and out of their shifts.  Currently, these security checks are “off the clock” but sometimes these employees are spending 45 minutes a day waiting to get their bags checked.  Should they be getting paid for that time?  The courts are now deciding that question.

One of those employers is Apple, who is currently defending itself against a class-action case by store workers who say they were not paid for time spent waiting for Apple security to check their bags each time they left a store, whether for lunch breaks or at the end of their shift.  Understandable, Apple retail locations house some pretty expensive and tiny electronics (…not including the iPhone 6+ which just seems oddly huge).

I’ve been keeping an eye on this California class-action to see what happens because there are several other retail employers that have similar practices and have smaller class actions also pending.  The outcome may require employers to seriously modify their policies.

You can check out the Apple case by clicking this link.