A major issue of recent vintage in wage hour litigation is whether workers must arbitrate their claims individually, as opposed to pursuing class actions, whether in an arbitration forum or in court. The doctrine favoring arbitration was just given another boost, as Robert Half International Inc. has won a motion to keep worker overtime claims in individual arbitration proceedings, rather than proceeding as a class action. The case is entitled Opalinski et al. v. Robert Half International Inc. and was filed in federal court in the District of New Jersey.
The employees (in March 2015) had lost their attempt to have the U.S. Supreme Court review the matter. The Company had fought through the courts to overturn an arbitrator’s decision that the Company’s agreements with former staffing managers allowed them to proceed as a class in arbitration to pursue their overtime claims. Now, with this decision, the only things to be litigated are the former employees’ individual arbitration claims.
U.S. District Judge Madeline Cox Arleo held that the Company’s legal theory was well founded on appellate and Supreme Court precedent; the Company had argued that the Federal Arbitration Act did not allow an arbitrator to conduct class arbitrations unless the parties agreed to participate, and the absence of any reference to class arbitration in an agreement meant that it was not agreed upon, as the Third Circuit held in July 2014 when looking at the case.
Judge Arleo stated that “Third Circuit law weighs against finding implicit consent if there is no explicit mention of class-wide arbitration whatsoever.” She added that “inferring agreement to arbitrate on a class-wide basis is disfavored where the arbitration agreement is silent on the point.”
The Company had tried to compel arbitration on an individual employee basis and (in October 2011) a federal court partially granted the Company’s motion, but it held that the issue of class arbitration was for the arbitrator to decide. In May 2012, the arbitrator held that class arbitration was permitted, which impelled the company to request that the district court vacate that decision. In December 2012, the district court denied that motion, finding that the arbitrator had not exceeded her powers by holding that the agreements allowed class arbitration. In July 2014, the Third Circuit reversed, finding that if class arbitration was not specified in the employment contract, a court, not an arbitrator, should decide whether arbitration could proceed on a class-wide basis.
Arbitration agreements are coming into vogue more and more, especially those with class action waivers. Although the Court agreed that the failure to mention class arbitration meant that an arbitrator could not read such a provision into the agreement. The “problem,” however, might be fixed by drafting and specifying that class action arbitrations are not allowed.
Exemption issues are very tricky and very fact sensitive. Given that, courts in different jurisdictions can come down differently on the same issue and then the US Supreme Court is called upon to resolve this difference in the federal Circuit (i.e. appellate) courts. With the job category known as “service advisers” in auto dealers, this premise may be tested. This is because the National Automobile Dealers Association has petitioned to the Court to decide whether these employees, who talk to dealers’ customers about vehicle repairs, are exempt. The case is entitled Encino Motorcars LLC v. Navarro.
The theory of the petitioner in its certiorari submission is based on the statutory language of the Fair Labor Standards Act exemption for salespeople and a “solid wall of judicial authority.” The petitioner notes that, other than the Ninth Circuit (covering western States) many other Circuit Courts of Appeal have ruled that this exemption included the service advisers.
The association in its brief urged that “the Ninth Circuit’s decision rejecting the applicability of the exemption to these well-compensated employees is an outlier, threatening to disrupt what has until now been a settled, widely accepted compensation practice in the nation’s car and truck dealerships.” In March, the Ninth Circuit ruled that the service advisers were non-exempt because they not sell cars to people nor did they work on the cars, as to make them exempt mechanics. Two other Circuits, the Fourth and the Fifth Circuits, would not adopt those exemption interpretations. Thus, there was a split in the Circuits requiring resolution by the highest court.
The Association urged that “certiorari is clearly warranted to resolve the circuit split on this issue and to clarify the scope of this key exemption for the nation’s car and truck dealerships.”
The only possible exemption is the administrative. That is also the hardest to prove. It is up in the air, to me, whether the service adviser work could be argued to be connected to general business operations, that is, operations outside of the mainstream of “production” for the business.
I think the service advisers are in that main stream of production. Even if they are performing activities directly related to general business operations, a second, more daunting obstacle remains; I question whether the employer can prevail on the “discretion and independent judgment” prong, where many of these cases go south for a defendant.
We’re pleased to note that U.S. Magistrate Judge James L. Cott of the U.S. District Court for the Southern District of New York recently cited a New York Law Journal article written by Fox partner Glenn Grindlinger in a memorandum order. In the order signed November 6 in Souza et al. v. 65 St. Marks Bistro, Judge Cott noted the Second Circuit’s decision in Cheeks v. Freeport Pancake House. In Cheeks, the court held that “stipulated dismissals settling FLSA claims with prejudice under…the Federal Rules of Civil Procedure required the approval of the district court (or the U.S. Department of Labor)…in order to take effect.”
In a footnote, Judge Cott wrote:
Given this dicta, one commentator has observed that Cheeks is “a problematic decision for employers as it will make it harder to resolve FLSA claims,” and “[b]ecause courts will scrutinize FLSA settlement agreements before they will dismiss an FLSA case, defendant employers will find it difficult to include confidentiality and other provisions in an agreement that are normally contained in settlement agreements.” Glenn Grindlinger, Second Circuit Requires Court Approval of all FLSA Settlements, New York Law Journal, August 19, 2015, at 3.
To read Glenn’s full piece, please visit the Fox Rothschild website.
I often blog about what is and is not working time under the FLSA. Many class actions have been brought on these issues, with some focused on time waiting for security checks. A class of retail workers working for Apple Inc. have sought a ruling that the time they spend having their bags checked at work was working time because they were under their employer’s control during these mandated security screenings. The case is entitled Frlekin et al. v. Apple Inc., and was filed in federal court in the Northern District of California.
The plaintiffs argued that the time was compensable because it was required and, most importantly, they could be disciplined if they did not comply with the screenings. The defendants countered by asserting that the screenings were not “required” because the employees were not required to bring backpacks, purses and iPhones to work, which were the items being screened. The plaintiffs countered that by asserting that this was not “an activity that’s done for the employees’ benefit.” Their lawyer stated that “you can’t tell an employee how to spend their time and not compensate them for that time.”
The defendants argued that it was insufficient to claim that the employees were under Apple’s control when they went through the security screenings, but rather the focus should be on whether the plaintiffs were required to bring items to work. The defendants claimed that bringing these items to work was only for the employees’ convenience and therefore fell outside the realm of FLSA work time, which does require some element of compulsion.
The Court ruled in favor of Apple. The Court noted that just because the bag checks solely benefited Apple and were required did not mean that the time was compensable; the employees could have simply not brought the bags to work. The Court ruled that “plaintiffs could all freely choose not to bring bags to work, thereby avoiding Apple’s restrictions during exit searches. That free choice is fatal to their claims.” The Court also found that “Apple’s searches had no relationship to plaintiffs’ job responsibilities; they were peripheral activities relating to Apple’s theft policies.” The Judge analogized the time waiting for a bag check, simply because the employer benefits by the activity, to the workers being paid for their commute to work because an employer benefits “by physically having its employees on premises.”
When I give presentations on working time, I stress that there must be an integral connection of the preliminary activity to the primary/work activity for the time to be compensable. Also, I stress that where there is an element of employer compulsion, this tilts the scales heavily in favor of the time being deemed working time. Here, the Court concluded that the activity was not integrally connected.
The freedom of choice was the key, as the choice not to bring a bag ostensibly allowed the worker to pass right through and not “lose” any time in the security clearance process. In scenarios where preliminary time is compensable, the employee cannot do his primary job without engaging in the preliminary work, such as a cashier who needs to balance out their cash drawer before commencing (or finishing) work. Here, that was not the case. Although there was employer compulsion, that did not trump the lack of connection to the primary work being done.
I recently read a posting by Julie Badel on the Wage & Hour Defense Blog and felt so moved that I am compelled to comment on it. She wrote about a Fifth Circuit case in which the USDOL was sanctioned because “the government here chose to defend the indefensible in an indefensible manner.” The employer was awarded attorneys’ fees because of the Department of Labor’s bad faith. I find this a teachable moment, not only for the government, but for all parties engaged in any FLSA litigation. The case is entitled Gate Guard Services, L.P. v. Perez, 792 F.3d 554 (5th Cir. 2015).
As Julie notes, this case was off the wall. A drinking buddy of a DOL investigator told his friend that he had been misclassified as an independent contractor. The investigator conducted a superficial, quickie investigation and then destroyed his original notes. He assessed six million dollars in wages against the Company, notwithstanding that he had violated several internal guidelines. Then, the agency learned that courts, in very similar cases, had held that these kinds of workers were, in fact, independent contractors.
The Fifth Circuit was less than pleased with this pattern of behavior. It observed that the “government’s intransigence in spite of its legally deteriorating case, combined with extreme penalty demands and outrageous tactics, together support a bad faith finding.”
My numerous dealings with the Departments of Labor (both federal and state) have been marked by cordiality and professionalism, 99% of the time. The agencies have always acted in a reasonable manner and have, in general, been willing to listen to what I say, as an employer’s advocate. That is why I believe that this case is aberrational and the conduct at issue herein is probably unlikely to be repeated.
With that said, an employer-defendant should be on the lookout for what might seem to be excessive behavior, especially in the course of litigation. If the DOL actively and intensely pursues a case it should not, for motives that may be problematic, defense counsel should not hesitate in seeking to vindicate its position on these fronts, at the same time maybe sending a message of deterrence to the government.
I just posted last week about an off-the-clock FLSA class action case. Well, maybe it’s the season, or the leaves changing color, but another such case has recently started to work its way through the courts. A putative class of personal trainers at Lifetime Fitness Inc. are now seeking conditional class certification in an Illinois action in which the plaintiffs’ theory is that the company sought to avoid overtime by compelling the employees to work off the clock without pay (i.e. overtime). The case is entitled Steger et al. v. LTF Club Operations Co. Inc., and was filed in federal court in the Northern District of Illinois.
The trainers allege that they were paid on commission and classified as exempt under the FLSA Section 7(i) exemption, but allege that they did a great deal of work such as cleaning exercise equipment, performing fitness assessments for prospective clients, completing mandatory classes and walking the gym floor to solicit new business, which did not generate commissions. The plaintiffs allege that if they failed to earn time and one-half the minimum wage through their commission (which is what is needed to qualify for the exemption), they were paid the difference through a supposed “draw” which was later deducted from subsequent paychecks.
The Complaint also alleges that managers were penalized for supervising trainers who failed to make that minimum by incurring the deduction of the draw money from their own earnings. Thus, the managers encouraged their employees to clock in only while they serviced clients, and to perform the rest of their required tasks off the clock. The penalty for not obeying this (illegal) directive was, according to plaintiffs, termination of their employment. The Complaint asserts that “even though personal trainers were in the fitness centers under the control of Lifetime performing work, they did not clock in. Personal trainers who did take the draw were instructed not to, and if they did not comply, they were fired.”
Lifetime Fitness operates over one-hundred fitness centers in more than two dozen states that currently employ a total of 3,000 personal trainers, according to the conditional certification motion. The proposed class of employees includes Pilates instructors, metabolic specialists, nutritionists and others, in addition to traditional personal trainers; the plaintiffs estimate that the putative class contains 6,000 people.
The plaintiffs’ counsel stated that this procedure was nothing more than a”sophisticated form of denying people wages.” He continued by asserting that the Company “ incentivized their store level management to encourage their workers to work off the clock.” For my part, I know, from experience, that where labor costs are an issue and labor budgets are right, companies, and/or individual managers, can feel sufficiently pressured to cut corners and have people work off the clock. This is always very risky, as all it takes is a single employee, probably one who has been fired (and correctly so) to file a complaint or be the “named plaintiff” in a lawsuit. Then, the efforts made to stay within labor budgets end up blowing the legal fee budget.
I have blogged a lot and given numerous presentations on the dangers of off-the-clock work time FLSA lawsuits. They are proliferating at a geometric rate and there seems no abatement in sight. There also is no industry that is not subject to being targeted for a lawsuit alleging unpaid work time. Now, a group of parking production assistants who work for CBS filed a suit claiming they were not paid for hours worked, not paid overtime and had their time records maintained in a ”creative” manner to accomplish that objective. The case is entitled Hines et al. v. CBS Corp. and was filed in federal court in the Southern District of New York.
The employees claim they were not properly paid for overtime hours worked guarding vehicles and blocking traffic on sets. These employees secure sets, lots, streets and guard production vehicles while they are working on set. They work for shows that film in New York such as “Elementary,” “A Gifted Man,” “Nurse Jackie” and “Masters of Sex.” Their theory is that they worked at production sites for 50-100 hours per week, but this working time was not recorded anywhere and there was impropriety in the manner in which the records were kept .
The Complaint alleged that “during the execution of these documents, defendants require plaintiffs to leave the wage information blank on the wage verification forms and the defendants later fill in this information with the rates necessary to complete their scheme of depriving plaintiffs of their due overtime pay.” For example, the named plaintiff asserts that he was paid $150 for a twelve hour shift, worked between 60-100 hours per week but was not paid any overtime
The plaintiffs’ counsel stated that “this is just a pattern and practice of how the industry is run.” He charged that this practice “involves some manipulation of the payroll [that is found] when you look at the paychecks.”
It may well be an industry practice that these workers are expected to work many off the clock hours. It may also be true that, as a rule, people do not complain (at least until they no longer work there) because maybe they want to rise within the industry and do not want to risk being blacklisted because they complained.
That does not matter for FLSA purposes. The truth is it only “takes one.” If a single worker (current or former) files a lawsuit and dozens or hundreds of other employees were subject to the same policy or unwritten practice, then they will all be included in any putative class that may be certified. If this record keeping practice allegation proves to be true, that will almost by itself ensure that willfulness exists and a third year will be allowed by the court.
The lesson is that there are ways, legal ways, to control labor costs at the same time ensuring and maintaining compliance with the FLSA. The key is to find them.
Lights! Camera! Action!
As an employer’s, i.e. a defendant’s attorney, I just want to win the case and I don’t care how (within ethical parameters, naturally). Not too often, however, can an employer argue that the workers who are suing are not even covered by the Fair Labor Standards Act. In a recent case, an employer was able to do just that because it successfully argued that the suing workers were engaged in “agriculture,” which is an exempt industry under the FLSA. The case is entitled (Barks v. Silver Bait, LLC and was decided by the Sixth Circuit Court of Appeals.
The suing workers were employed at a Tennessee facility that raises worms to sell for bait. The Sixth Circuit concluded (affirming the lower court) that the FLSA definition of agriculture was meant broadly to reach “farming in all its branches” and applied to this sizeable company which cultivated worms for sale to retailers. Although “worm farming” was not agriculture in a traditional sense, the Court (as other courts) held that the definition is intended to evolve and that the “ordinary meaning” of farming applied to the “entire field of farming.”
The Court examined the FLSA definitions of “farming” and had some difficulty categorizing the activity. The Court looked at the covered commodities (e.g. milk, wool, eggs, honey) and stated that “the list of included and excluded commodities is instructive in that worms are more like the included cultivated commodities than the excluded wild ones.” The Court also noted that raising worms was not “expressly exempt” under any FLSA example. The Court then examined the scope of the “unlisted” farming activities and concluded that the raising of bait worms “has much in common with traditional farms.” It shared “the same basic purpose” as traditional farms, to raise animals for sale as commodities.”
The Court finally observed that “although not a specifically enumerated farming activity, there is little to distinguish Silver Bait from a traditional farm other than the unfamiliarity of worm farming.” Thus, the Court found that the growing and raising of worms is a form of farming within the FLSA’s agricultural exemption.
A win is a win. The lesson here is always to look at issues like jurisdiction or statute of limitations or some other perhaps, purely procedural, hyper-technical (dare I say gimmicky?) way to win the case especially in its early stages. i.e. motion to dismiss, summary judgment motion. Here, the defendant convinced the court to stretch the meaning of the word “farming” as defined under the FLSA by arguing that the meaning of farming was not frozen in time and had changed with the times.
As does the need/desire to find creative ways out of a case…
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 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.