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

This week, Judge Ronald Guzman of the U.S. District Court for the Northern District of Illinois granted class certification in Ervin et al. v. OS Restaurant Services, Inc., a Fair Labor Standards Act suit accusing Outback Steakhouse of failing to pay minimum wage to employees at one of its locations.  

The plaintiffs, former employees of an Outback Steakhouse, filed the suit in February 2008. They all worked as bartenders, servers and other tipped employees and were paid less than minimum wage under the tip-credit provision of state and federal minimum wage law. However, the suit claims that tipped employees were regularly required to do work that did not involve being paid tips, yet they continued to be paid their sub-minimum wage salary.

Judge Guzman decided to certify the class based on the magistrate judge’s conclusion that the plaintiffs had made a modest factual showing for all of their claims under the FLSA sufficient for class certification. However, the Judge denied certification for the plaintiff’s state law claim on the grounds that the state law opt-out component did not comport with the FLSA’s opt-in component. Indeed, under the rules governing class claims, eligible class members in the state law action would be included in the suit unless they opt out, while no one can become a class member in an FLSA suit unless he opts in.

Given that incompatibility, the magistrate judge recommended, and Judge Guzman agreed, that only the FLSA class should be certified.

The lesson that employers should take away from this decision is to be more aware of the tasks delegated to employees who are paid less than minimum wage pursuant to the tip-credit provision of state and federal minimum wage law.

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There is an exemption under the Fair Labor Standards Act for individuals who earn at least 50% of their compensation from commission, earn at least time and one-half of the federal minimum wage for all hours worked and who work in a “retail” establishment.  Many states have adopted this exemption as well. The tricky part is often meeting the definition of a “retail” establishment.

In order to be retail, there must be a concept of “retailability” in the product or service provided, as that term is used in the regulations, opinion letters and cases. Secondly, the particular service or product must be “considered” as retail in the industry, which is the second component of the retail test.

“Retail” means selling to end of the line consumer, who is positioned at the end of the “stream of distribution.” It means selling products and services directly to consumers, meaning individuals. There are a number of cases standing for the proposition that a business selling its services to other businesses is not selling on a retail basis.

For example, a business that sold inventory services to other businesses was held not to be retail. A shopping service business that sells services to retail businesses and which serves their needs by investigating and reporting upon the efficiency and honesty of store sales people was not “retail.” A business that specializes in investigating the validity of workers’ compensation claims and who sold those services to insurance companies and law firms was held not to be retail.  The court noted that “these services clearly are not used by the general public.  This is a specialized service used only by certain members of the business community and therefore lacks the retail concept.”

In sum, where businesses are selling services to other businesses, even though their clients might be deemed “consumers,” those purchasing entities are not the ultimate end-of-the-line consumers envisioned by the federal regulations.

The other component is that the business must be considered retail within the “industry,” however the term "industry" is defined.  29 CFR 779.324.  Such a concept is “wider and greater than the views of an employer in a trade or business or an association of such employers.”  Thus, if an employer can secure opinions from recognized authority that sales of particular services were considered retail within the industry, an argument can be made.

The lesson is that an employer must accurately and definitively determine, before it exempts commission people from overtime, that the particular business of the employer is “retail.” Failure to make an accurate determination may come back later to haunt an employer in the form of a lawsuit, whether individual or class action.
 

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In the 1960’s, a movie came out entitled “The Russians Are Coming! The Russians Are Coming!” It was about a Russian invasion of the United States. Well, a different kind of Russian invasion has hit our shores, but it takes the form of a class wage-hour action filed by Russian performers in a Las Vegas ice-skating revue, the “Moscow Ice Circus.” They allege they have not been paid for more than 225 performances, that they were docked pay because they gained weight and were not paid overtime.

Twelve former performers filed the lawsuit in the U.S. District Court of Nevada, alleging that Sergey Ryshkoff’s Moscow Ice Circus LLC and Ice Show Corporation violated the Fair Labor Standards Act. The case is entitled Abrosimov v. Sergey Ryshkoff’s Moscow Ice Circus, LLC.

The Circus is a live show that includes jugglers, acrobats, figure skaters, clowns and gymnasts performing acrobatics on an ice skating rink. The plaintiffs claimed they were hired to perform acrobatics and ice-skating routines for the Moscow Ice Circus show at the Riviera Hotel and Casino in Las Vegas, but allege that their employer refused or neglected to pay them for a staggering 225 performances.

They also allege that they were not compensated for the marketing they did for the show on the Las Vegas Strip. When they engaged in these activities, they had to don costumes and present mini performances while skating and handing out fliers to pedestrians. They also allege that their compensation was subject to deductions for tardiness and weight gain.

This case illustrates the different nuances and forms that a class action can take. Although this fact pattern seems, on one level, humorous, it may not turn out to be so funny for Sergey when he has to pay the back wages.
 

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A FLSA litigation can drag on for an interminable time, drain legal and company resources and ultimately end up in settlement discussions where the biggest issue for negotiations are the plaintiffs’ attorneys legal fees. There is an effective, tried and true manner to bring a FLSA collective action to a dispositive and less costly favorable resolution for a defendant. That is the Offer of Judgment under Federal Rule of Civil Procedure 68.
Under Rule 68, after some time has elapsed in the case, the employer can offer a full remedy, which in a FLSA case means computing wages allegedly owed back three years from the date the plaintiff(s) entered the case and then doubling that amount to account for liquidated damages. The plaintiffs have ten calendar days to accept the offer. If he/they do not, the employer can file a motion under Federal Rule of Civil Procedure 12(b)(1) to dismiss the case on mootness grounds.
Thus, the employer can use this procedure offensively to bring an end to the case. Courts in a number of federal circuits have dismissed cases on these grounds. In a variation on the theme, in Smith v. T-Mobile USA Inc., the Ninth Circuit Court of Appeals held that two former sales employees, who had accepted Offers of Judgment, lacked standing to appeal a lower federal court’s decision to deny class certification to all Company hourly employees because they failed to retain a personal stake in the litigation and their cases were moot.
I believe this is a viable and cost effective manner for a defendant-employer to resolve a FLSA case. There may yet be a parallel state case filed, but the state law may be more favorable to the employer, such as not having liquidated damages or an “extra” third year on the statute of limitations. It also puts pressure on a plaintiff to make a choice and take a gamble---should they accept the offer or expose their case to the chance of complete dismissal. The proper answer for the plaintiff depends on whether he and his counsel have made an accurate computation of his damages.
 

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