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

In Albrecht et al. v. Wackenhut Corp., the U.S. District Court for the Western District of New York has dismissed a lawsuit in which approximately 115 security guards accused their employer, Wackenhut Corp., of violating the Fair Labor Standards Act and New York State Labor Law by not paying them for time spent arming up, checking through security and arming down.

The plaintiffs alleged that that these duties took roughly 15 minutes per day and that they should be compensated for that time. However, the Court found that all three of the processes took less than a minute each to complete. On that basis, the Court reasoned that these preliminary and postliminary activities were not subject to compensation under the Fair Labor Standards Act as they were de minimis in nature. 

Additionally, Wackenhut had implemented a daily briefing for all guards at the Ginna facility, and, consequently, the guards had to report for duty 15 minutes before the start of their scheduled shifts. The parties agreed that they were being compensated for that time, but the plaintiffs claimed the briefings were not included in overtime calculations. The Court rejected this contention because it was not included in the complaint nor mentioned in the depositions. Moreover, the Court pointed out that Wackenhut's policy called for the briefing time to be compensated at the guards’ normal base rate for time under 40 hours in a week and at the guards’ overtime rate for time over 40 hours in a week.

Accordingly, the court dismissed the case. The point is that the de minimis doctrine covers only fleeting, inconsequential periods of time. Although the employer in this case succeeded in having the case dismissed, if the time had actually been shown to be 10-15 minutes per day, or, roughly, an hour per week, that would not have been deemed inconsequential and the class action would have been viable. Repetitive duties, done every day, will not be de minimis if the aggregate time, on a weekly basis, exceeds a small amount of time.

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A few weeks ago, I posted about a procedure that could be used to defeat FLSA collective actions before they got started. That was the Offer of Judgment procedure under Federal Rule of Civil Procedure 68. Although there were cases previously approving that dismissal process, there seems to be the beginning of a tide.  Only a few days ago, a federal judge has dismissed a class action against United Mortgage and Loan Investment LLC, on the basis that the court lacked subject matter jurisdiction because the defendants had offered the plaintiffs the maximum they could recover, which they turned down.  That simple scenario is the essence of the Offer of Judgment process.

In this case, docketed as Simmons v. United Mortgage and Loan Investment, LLC et al., the U.S. District Court for the Western District of North Carolina dismissed the case and denied the plaintiff’s motion for conditional collective action certification.  This was because the “defendants’ May 16, 2008, offer of judgment mooted the action, depriving this court of subject matter jurisdiction.”

As the plaintiffs rejected the offer, they will receive nothing. This really points out the dangers for continuing to litigate when a plaintiff has already been offered everything they could conceivably win. In my view, this represents a (hopefully) growing trend of the federal courts showing that when a plaintiff refuses to resolve a case at an early stage in the litigation process, there are consequences that flow, i.e. dismissal of the case and not receiving the originally offered money (or any portion of it).

Significantly, the May 2008 Offer gave the plaintiffs all they could have won at trial, i.e., back pay, liquidated damages, attorneys’ fees and costs. When they did not take the offer, the result was that the active case or controversy, which is what is needed for a court to maintain jurisdiction, was dissolved.

The Judge agreed there were concerns relating to a defendant-employer's ability to “pick off” FLSA plaintiffs and moot a collective action before it got started.  Rule 68 does exist for a reason, however, and it is there to be used, in the appropriate circumstances.  In this regard, under the FLSA’s opt-in mechanism, only those individuals who affirmatively choose to join a particular suit are actually in it, so an individual who has tried to opt in to a collective action that is mooted through an Offer of Judgment may nevertheless pursue his own case.

I believe this is a very viable mechanism for an employer trying to stop FLSA cases at an early stage, before legal fees mount up and before other putative plaintiffs join in and, especially, before a class gets certified. The key lies in melding proactive action with making the Rule 68 Offer. If the employer is doing something wrong (e.g. misclassification of employees as exempt), it must fix the problem before it makes the Offer of Judgment so that the one active case gets dismissed and even if others then come forward, there will be nothing for them to glom on to, as the problem has been solved and the danger eradicated..
 

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It appears that the U.S. Department of Labor and the Internal Revenue Service are planning to escalate their efforts, i.e. audits/inspections, focusing on (some might say, targeting) employers for their allegedly improper classification of individuals as independent contractors rather than employees. Concomitant to this will be an aggressive and enhanced use of penalties, both to foster compliance and, of equal importance, revenue generation.

The U.S. Government Accountability Office has issued a report, finding that misclassification of individuals as independent contractors is not a per sec violation of the law, but noting that such actions are often linked to violations of the labor and tax laws. With that said, re-classification of individuals to employees means that unemployment contributions have to be paid on them, the same for workers’ compensation premiums and, more importantly, overtime has to be paid if they work over forty hours. Independent contractors do not get overtime.

The report chided the Department of Labor for not having its investigators look for evidence of contractor misclassification when they conducted normal wage-hour audits. Although the investigators might have inquired about the “presence” of independent contractors or discover misclassification issues through worker interviews, they failed to, as a rule,. review employer records evidencing payments to people labeled as “independent contractors.”

The Wage Hour Division of the USDOL conducted 24,500 Fair Labor Standards Act cases in 2008, but only 131 focused on misclassification. The vast majority of those cases were triggered by employee complaints.

Heightened enforcement is everywhere, spreading like a flu we are all reading about. Proper classification of someone as an independent contractor, a “true” independent contractor, is often confusing, with many shades of gray. More confusion is engendered by the particular State the employer does business in and the particular law (e.g. unemployment, Title VII, workers’ compensation) that is implicated. Self-audits, internal audits focusing on the various factors that are always examined (i.e. control, independently established business) are a very good inoculation against this very expensive flu bug.

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I have often written of the dangers from class actions based on misclassification theories, e.g. administrative exemption. There are working time actions, alleging illegal policies of making employees work off-the-clock as well. In a case entitled Clara Seamands et al. v. Sears Holdings Corp. et. al employees of Sears have filed a class action in federal court in Kansas alleging improper payment of commissions and an outright failure to pay commissions. The employees claim that Sears denied them proper pay and never told them of planned/proposed reductions in their commission arrangements.

In instances in which the workers alleged that their sales records did not match up with their commission compensation, the Company failed to investigate and then did not resolve the situations. Rather, the Company allowed the issues to fester. The plaintiffs allege this was willful, not done through mere negligence.

The lawyer for the putative class stated that “Sears has a systemic problem in the way it processes sales and pays commission.” Clearly these are moneys that should have been paid to employees, and instead Sears retained them.”

There are probably 1,000 employees that could be encompassed by the class. The lawyer believed the number could rise a lot higher. The complaint alleges violations of the employees’ contracts and many state laws. As damages, the plaintiffs seek back commissions and (of course) attorneys’ fees.

This case teaches that commission policies may and should be set by the employer, but they should be in writing and be disseminated to all affected employees. The employees should sign off on the commission policies and any substantive revisions or changes to them. Naturally, the employer must adhere to its own commission policy and pay commissions when they vest. When commissions vest can be open to interpretation, but once commission “vests,” it becomes earned wages and then can form the basis of a Department of Labor complaint, or, as herein, a (potentially) nationwide class action.

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In Somers v. Converged Access Inc., Massachusetts' highest court ruled that an employee misclassified as an independent contractor can seek damages from an employer even if the employer can show that the employee would have been paid less if properly classified. Sounds unbelievable, but nevertheless is still the case!

Somers alleged that he should have been classified as an employee and received benefits accordingly. The lower court granted summary judgment to Covered Access, Inc. on all counts.  Although it found that there was an issue of material fact as to whether Somers was misclassified, the court held that to be academic because Somers was paid much more as an independent contractor than he would have been as an employee.

Interestingly, the Massachusetts Supreme Court took the case on its own initiative. The Supreme Court rejected the lower court's finding that if an employee is found to be misclassified as an independent contractor, the employee's pay must be treated as his base wage, as though he were an employee, for the purpose of calculating damages. Indeed, in a blow to employers, the Supreme Court stated “[a]n employee misclassified as an independent contractor, as a matter of law, is an employee; his contract rate is his wage rate; and his 'damages incurred' equal the value of wages and benefits he should have received as an employee, but did not.”

The decision should be a warning to employers to make sure your independent contractors truly are independent, because if a person is misclassified as an independent contractor, he can still seek damages even if as an employee he would have been paid less. Like Ripley said, believe it or not!

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In order to be exempt, an employee must perform certain duties and be paid a “salary” as that term of art is defined. Employers/clients have been calling and inquiring whether they can reduce exempt employee salary, without jeopardizing the exemption. Under federal law, within certain parameters, this is permissible.

Now, the California Department of Industrial Relations’ Division of Labor Standards Enforcement has issued an Opinion Letter (DLSE Opinion Letter 2009.08.19, 8/19/09) agreeing with the federal position. As California almost always has tougher, i.e. more pro-employee, standards than the Fair Labor Standards Act requires, I see this as a watershed development in wage-hour law.

Under the California Opinion Letter, an employer that experiences economic difficulties and, for example, reduces the work week of exempt employees from five days to four and also reduces their salary by 20% will not run afoul of the “salary basis” test for these workers to still be considered exempt under California state law. The key is that the employer’s action must be temporary in nature.

The Opinion Letter acknowledged that this issue had not been addressed by California courts, but acknowledged that the federal Department of Labor and federal courts have concluded that an employer who shortens a workweek because of straitened economic conditions does not violate the salary basis test for exempt status under federal law. In this case, the request for the opinion came from a California employer that was going through “significant” economic difficulties arising from economic conditions in California.

The company had already laid off employees, but wanted to implement other measures until things got better. The employer also advised that it intended to restore the full workweek and when it do so, it would re-establish the original salaries of the affected exempt employees. The Opinion Letter noted that

“there is no express restriction in California law to having a fixed reduction in a salary during a period when the company operates a shortened workweek due to economic conditions.”

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