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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

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

Posted in Class Actions

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

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

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

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

The Takeaway

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

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

Posted in Class Actions, Exemptions, Overtime Issues

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

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

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

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

The Takeaway

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

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

New Jersey Missclassification Wage and Hour Suit

Posted in Class Actions, Independent Contractor

An interesting case coming out of New Jersey…

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

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

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

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

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

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

(C) Is engaged in an independently established business.

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

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

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

Posted in Exemptions

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

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

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

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

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

The Takeaway

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

Payless Shoes Settles Another FLSA Executive Exemption Misclassification Suit

Posted in Class Actions, Exemptions, Overtime Issues

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

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

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

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

The Takeaway

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

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

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

Posted in Class Actions

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

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

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

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

The Takeaway

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

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

Posted in Class Actions, Exemptions, Overtime Issues

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

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

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

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

The Takeaway

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

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

An anonymous letter raises questions concerning FLSA retaliation

Posted in FLSA Retaliation

On Friday, February 20, 2015, a federal judge issued an unusual order in Fujiwara, et al. v. Sushi Yasuda, LTD, et al, 12-cv-8742(WHP) (S.D.N.Y. Feb. 20, 2015).  After receiving an anonymous letter in an FLSA lawsuit, United States District Judge William H. Pauley directed counsel for the parties to conduct an investigation into the circumstances concerning the allegations asserted in the anonymous letter and to submit a joint report by next Monday, March 2, 2015 on the status of the investigation.

The lawsuit claimed that a sushi restaurant, Sushi Yasuda, improperly withheld gratuities from employees, and violated the minimum wage and overtime requirements of the FLSA and New York Labor Law (NYLL).  After taking initial discovery, Plaintiffs moved for class certification of their NYLL claims.  However, before Sushi Yasuda filed any opposition, the parties entered into a settlement agreement on a class-wide basis, which the court eventually approved in January 2015.  Thus, the lawsuit had been settled before the anonymous letter was sent to the court.   However, the letter, purportedly sent by an unknown chef at the restaurant, indicated that class members were being pressured by unnamed managers not to cash their settlement checks under the threat of losing their job and work visa.

Certainly, the anonymous letter would trigger concerns of prohibited retaliation under the FLSA, see 29 USC § 215, which explains why Judge Pauley took the unusual step of having counsel for the parties investigate the circumstances surrounding the letter.  Indeed, the court’s reaction to the letter demonstrates that retaliation can occur even after a settlement has been reached between the parties and approved by the court.

However, the letter does raise additional questions.  Because the letter is anonymous there is no way to know whether the author was a named plaintiff, an opt-in plaintiff, or a class member that never affirmatively joined the litigation.  The FLSA anti-retaliation provision, however, prohibits any retaliatory conduct “against any employee because such employee has filed any complaint or instituted or caused to be instituted any proceeding under or related to [the FLSA] or has testified or is about to testify in any such proceeding …” Id. at §215(a)(3).   Thus, one question is presented as to whether a claim of FLSA retaliation can involve an individual who engaged in no protected activity.  Additionally, in this case there was no determination on the class certification under Rule 23 or under state law.  Thus, there could not be retaliation based on the unknown author’s standing as a class member involved in the litigation.  Because the FLSA relies on an “opt-in” procedure, as opposed to Rule 23 class certification, an individual who does not opt-in to the litigation, is not presenting any FLSA claim or bound by any determination concerning such claims in that litigation.  See, e.g., Guzman v. VLM, Inc., 07-cv-1126 (JG), 2008 WL 597186 at *10 (E.D.N.Y. Mar. 2, 2008); Butler v. American Cable & Tel, LLC, 09-cv-5336, 2011 WL 4729789, at *12 (N.D.Ill. Oct. 6, 2011).

Of course, the argument can be made that, by virtue of sending the letter, the anonymous-chef author has engaged in some type of protected activity, even if he/she is not a named Plaintiff or opt in Plaintiff.  Thus raising the question as to whether such activity, merely sending a letter to the judge, actually satisfies the requirements of Section 215.

Putting those questions aside, there is no question that the court, by virtue of its inherent authority to supervise the settlement and ensure that the settlement is fairly effectuated, would have jurisdiction to address the possibility of any conduct which could impact the settlement and to punish anyone who threatens the fair and efficient resolution of the settlement.  Exercising such jurisdiction inevitably requires a determination as to whether any threat was actually made, and if so, what exactly was stated or threatened.

Whatever the answer to the questions posed above, it is important for any employer to impress on its managers that they may not threaten any employee for asserting an FLSA claim.  Certainly, any such threats could result in additional claims of retaliation, which will inevitably cost the employer more to defend.  Indeed, in order to truly realize the benefit of the settlement agreement and finally resolve these wage and hour claims, the employer should want the settlement payment to be fulfilled so that the employer can move on and return to business without further issues.

When Do Bonuses Get Included In Non-Exempts’ Regular Rate for OT Calculations?

Posted in Overtime Issues

A little known aspect of the FLSA is the need for an employer to include non-discretionary bonuses when calculating the regular rate for purposes of overtime calculation.  In a collective action, the employees of Publix Super Markets have charged that the Company has not done that, particularly in the face of an alleged admission by the employer that the bonuses were nondiscretionary.  The case is entitled White et al. v. Publix Super Markets Inc. and was filed in federal court in Tennessee.

The Company had filed a motion for summary judgment asserting that the quarterly profit sharing bonus paid to hourly employees, the Christmas bonus, paid time for six holidays and tuition reimbursement did not warrant inclusion in the OT rate.  The Company charged that the plaintiffs mislabeled the manner in which the employee bonuses were actually calculated and that, in fact, the payments were within the law.

The workers fired back, contending that the Company had gone on record conceding that the payments were nondiscretionary and that the payments conflicted with DOL regulations.  The Company rebutted by contending that the bonus already provided “simultaneous payment of overtime compensation due on the bonus.” The Company asserted that the bonus was calculated based on number of hours employees worked at their store during the relevant period and thus fell within the safe harbor of percentage bonuses.  If a bonus is computed as a percentage of total employee earnings, then under USDOL regulations, it is legal.   The Company asserted that the USDOL had already concluded that the bonus did not need to be included into the OT calculation based on this percentage calculation.

The workers countered by asserting that the DOL’s “longstanding interpretation” of the total earnings requirement for rendering a bonus excludable from the regular rate was that the retail bonus had to be included because they were remuneration for employment and not just expense reimbursements, the Company could not exclude those payments from the regular rate.

 The Takeaway

Bonuses (or whatever they are called) must be included in the regular rate, if they part of a policy, practice or custom and employees expect such bonuses.  Truly discretionary bonuses are rare animals, i.e. the Christmas bonus, but a way to defend such an allegation is to build into the bonus “program” that the giving of such bonuses is contingent on, for example, “budgetary concerns.”

With that said, if the plaintiffs in this case can show that the payments at issue were given as payments for some employment related activity, as opposed to, for example, a paid sick day where no employment activity is engaged in, they might have a case.

The Drive Towards “Fighting” Misclassification Heats Up In DC

Posted in Exemptions

I had blogged a few weeks ago about the Obama Administration’s initiative to revamp the white collar exemption rules to make more people overtime eligible.  Well, the Administration is not waiting for such revisions to seek to “root out” instances of alleged misclassification.  It has added $25 million dollars in the federal budget for the US Department of Labor to “fight” employee misclassification.

Under the proposed budget, it is anticipated that the DOL will hire more than 350 new employees, including 177 investigators and other enforcement staff.  The Wage Hour Division, the entity charged with conducting investigations relating to misclassification, will hire an additional ninety new investigators.

The amount of $25 million will go towards the so-called “misclassification initiative.”  Investigators will look more numerously to and closer at alleged employee misclassification, such as when workers are deemed independent contractors or consultants.  They are then ostensibly denied overtime and the protection of unemployment benefits.

The additional enforcement personnel will work pursuant to a joint undertaking by the DOL and Treasury to take away the reasons that employers misclassify employees and to beef up the power of both agencies to seek enhanced penalties for violations of the employee status rules/laws.

Nancy Leppink, the Deputy Administrator of the USDOL, has stated that when misclassification occurs “employees are deprived of the protections and benefits of the nation’s most important employment laws, and their employers gain an unfair advantage in the marketplace. Employees are particularly vulnerable to misclassification in these difficult economic times.”

The Takeaway

The most important thing is to be proactive.  Undertake, through and with counsel, an internal examination/scrutiny of all jobs considered exempt to ensure that they “really” are.  If you conclude some are not exempt, make the tough decision to reclassify the jobs.  Remember, most of all, titles mean nothing.  You need to match up the actual duties performed against the criteria set forth in the regulations to make decisions on exempt status.

Easier said than done…