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

I have posted several times about the offensive use of the FRCP Rule 68 Offer of Judgment in FLSA collective overtime (or other) actions, have myself utilized it to dispose of a FLSA collective action and have watched with great interest the journey to the US Supreme Court of the Genesis Healthcare case.  Well, the favorable outcome I portended has happened!

In Genesis HealthCare Corporation v Symczyk, the U.S. Supreme Court has ruled that when Genesis Healthcare Corporation offered full relief to the named plaintiff and the plaintiff refused it, then, under FRCP 12(b)(1), the refusal mooted the named plaintiff’s putative wage-and-hour and the collective action.

The Court left open, however, the issue of whether an unaccepted offer of judgment under Rule 68 moots an FLSA claim, leaving that perhaps more important issue in some legal doubt (although I am confident that this question will ultimately be decided in favor of defendants).  Significantly, the Court did not have to decide that issue, as the plaintiff had waived that issue and it therefore did not require resolution.

The 5-4 decision held that the plaintiff’s FLSA collective action challenging the Company's automatic meal break deduction policy was properly dismissed on jurisdictional grounds because the only named plaintiff in the suit no longer had an interest in the case after the employer offered full relief on her individual claims.

The Court reversed the Third Circuit decision, a pro-employee decision, that held that even though the named plaintiff was kicked out, the rights and claims of other potential opt-ins survived that unfortunate occurrence and the remainder of the class could yet proceed, assuming they could show they were similarly situated.

My heart soars.  I “knew” this was going to be the outcome or was, at the least, very encouraged when the Court took the case for review.  I also believe that Court at least intimated or “predicted” or “suggested” an outcome on this ostensibly more global issue and I am gratified to now "really" have a strong offensive weapon for a defendant and I look forward to using it (soon).

 

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When I am faced with a wage suit, whether individual or class action, I always look for a “magic bullet” a quick fix, a tactic that might make the entire suit go away in one fell (and less costly) swoop.

One of these tactics is to use a preemption defense. Where there exists a labor contract, the argument is that the National Labor Relations Act preempts the wage hour suit, meaning the employees have to arbitrate their claims. There are other types of preemption defenses, as illustrated by the defendant’s attempted use of one in a recent case. The tactic failed, but the principle remains an important one.

A federal judge has held that a federal transportation statute did not preempt state wage law claims filed by a class of truck drivers, who claimed they were really employees, not independent contractors. The case is entitled Martins et al v. 3PD Inc., and was filed in federal court in the District of Massachusetts.

The judge rejected the Company’s contention that the wage hour claims and misclassification allegations were preempted by the Federal Aviation Administration Authorization Act of 1994. This statute, in sweeping fashion, preempts state laws that address issues of price, route, or service for any motor carrier regarding hauling of cargo or property. The defendant claimed the broad range of this federal law trumped the state law claims.

The court stated that “3PD argues that plaintiffs’ claims are preempted by the FAAAA for two reasons: (1) they impermissibly seek to 'enlarge or enhance the bargain' that the parties entered into, and (2) they would affect the price of motor carrier services.” The court rejected both arguments, holding that both contentions relied on the premise that the individuals were independent contractors, but that, according to the court, was the quintessential issue in the litigation. The court also certified the class.

Always examine a possible preemption defense. This is easier to do when there exists a labor contract, but the possibility of preemption must always be considered, as it can eliminate a class action in a single motion.
 

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I have posted a number of times on the slew of intern lawsuits recently filed under the Fair Labor Standards Act. This may be a new “wave” or fertile new ground for plaintiff side practitioners so I keep following these cases, particularly, the Hearst Corporation case, with more than a little interest. This particular case is entitled Wang v. The Hearst Corporation and was filed in federal court in the Southern District of New York.

The Company is fighting the bid for class certification lodged by a group of unpaid interns who claim they were really employees and therefore denied minimum wage and overtime protections. The essence to securing/keeping certification is the existence of an overall, companywide policy that establishes, ab initio, a group of workers “similarly situated.” The Company has argued that the circumstances surrounding the internships at the nineteen (19) Hearst magazines that overall conclusions about the work experiences and/or “employee” status cannot be made. In sum, there is no commonality, ergo, no “class.”

This is the famous “individuality” defense that I have commented upon frequently. The defendants contend that for the Court to extrapolate from the few individual accounts by the named and/or deposed plaintiffs to all others in the alleged class, many thousands, possibly, is inappropriate.

The Company wrote in its opposing papers that “the bigger picture obscured by plaintiffs is that these internships are desirable learning opportunities for college students who have not yet entered the job market. These students all knew in advance that their internships would be unpaid, they knew the internships were limited to those who could earn academic credit, they knew the internships were of short duration spanning a semester or summer vacation, and they knew there was no job waiting for them at the end.”

I agree with the individuality defense and observe it is the only way to go, as there is no dispute that the people were paid nothing. The “understanding” that existed prior to the commencement of the internships is also important but, if the plaintiffs can demonstrate that they performed “productive work,” there may be an issue for the Employer. Thus, in any intern situation, be aware of this minefield.

 

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There are many industries where the agreement between the worker(s) and the employer is that the worker will receive a certain fixed lump sum of money, sometimes wholly or partly in cash, for an agreed-upon number of hours. This situation is rife in the gasoline station industry, as evidenced by the fact that a New Jersey gas station operator has recently settled a case, agreeing to pay $3,000,000 in unpaid wages/overtime and penalties to more than four-hundred employees at more than seventy gas stations in New Jersey for violations of the Fair Labor Standards Act . The case is entitled Harris v. Daniyal Enterprises LLC et al and was filed in federal court in New Jersey.

The employer also had to pay $91,000 in Civil Money Penalties. These are assessed for willful conduct or for repetitions of the same type of offending conduct, which occurred in this instance. The owner was also held personally liable.

The Acting Secretary of Labor noted that “this agreement returns hard-earned wages to workers in one of only two states that still mandates full-service gas pumps. All gas station owners and operators in New Jersey should take note of this precedent by reviewing their payroll practices and legal obligations. Gas station attendants are few in number, earn low wages, work long hours and often lack English proficiency — factors that contribute to their vulnerability as well as the importance of protecting their right to be paid properly."

There were fourteen companies named as defendants, all owned by Mr.Chaudhary; these companies operated BP and Shell gas stations in New Jersey. The Complaint alleged that the employees often worked more than eighty hours per week, with no overtime, with payment off the books to disguise the fact that the employees were working in excess of forty hours per week..

There had been two prior investigations by the DOL, both finding that monies were owed. In both instances, DOL officials met with Mr. Chaudhary and explained his obligations for recordkeeping and proper payment of wages, which he evidently did not heed. Under the terms of the agreement, the employer must implement a monitoring program at each station to ensure FLSA compliance, as well as establishing a confidential hotline for employees to report alleged violations.

First lesson---it only takes a single employee to complain to a DOL (or an attorney). Then, anyone in the same boat, i.e. similarly situated, will be included in the action. Second lesson---informal deals or arrangements, i.e. a salary for a set number of hours (often over forty) is a dangerous idea because overtime must still (and always) be paid, regardless of the “agreed-upon” arrangement.
 

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Do employers need to pay employees for accrued vacation time upon termination?  This is a question without a simple answer, and one that has been heavily litigated over the past several years.  Unlike most wage and hour issues, the Fair Labor Standards Act does not address this concern.  Rather, the payout of vacation time has been left to the states to regulate, and as can be expected, the results have widely varied.  Below is a brief overview of the different ways in which states have handled the payout of overtime:

• Employees must be paid for all unused, accrued vacation time at the time of termination (California, Colorado).

• Employees will be paid for vacation time upon termination unless the employer has a written policy stating otherwise (Iowa, Indiana).

• Employees will be paid for accrued vacation time depending on the employer’s written vacation policy and/or procedures (New Jersey, Pennsylvania).

Based upon the varying state rules regarding vacation pay, employers need to carefully assess whether their vacation pay policies are permissible. In particular, employers should consider whether the applicable state law permits the company to restrict the payout of accrued vacation time.  As Mark Tabakman stated in an earlier posting, “it is probably better to err on the side of conservatism in these matters (i.e. allowing payout) rather than risk a class action where the costs of defending and the possible costs of paying the plaintiffs’ legal fees will geometrically increase the payouts that otherwise would have been mandated.”
 

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I have noticed that there are not many lawsuits (e.g. class actions) brought that test the limits of the professional exemption.  That exemption, geared towards anyone with an advanced degree (lawyer, doctor, CPA, engineer) is fairly well defined and a lawsuit easily defended.  That rule, however, has its exceptions, as demonstrated by the granting of conditional certification to a class of more than three-hundred PriceWaterhouse auditors who claim that, since they were not CPAs, they were not exempt and are entitled to overtime.  The case is entitled Kress et al. v. PriceWaterhouse Coopers LLP and was filed in federal court in the Eastern District of California.

This development is another in a long saga of claims by such employees that the Company has, in a wholesale manner, misclassified them and denied them overtime.  The employees contend that they typically worked fifty-five hours per week during the tax season but were always denied overtime.

The Company has defended with the only defense that it can, the professional exemption as there seems to be little dispute that these employees worked the hours that the Complaint alleges. In other words, the Company is in for a dime, in for a dollar—if the defense is successful, then every member of the class gets nothing.  If it is unsuccessful, the liability will be astronomical (in all likelihood).  The plaintiffs counter by alleging that the Company’s required training regimen for its auditors coupled with the absence of additional training requirements renders the professional exemption inapplicable, as there was no advanced course of study required for the position.

The Company has also defended by contending that the actual duties and work of each associate must be scrutinized on a weekly basis, which means that too much individual scrutiny (my favorite defense) is necessary, thus defeating the class action.  This may actually turn out to be a better defense than the exemption defense?

When defending a professional exemption case, I always ascertain if an advanced degree is required and held by the employees at issue or an advanced license, like a CPA license. The difference between “staff accountants” or “junior auditors” which are non-exempt jobs and an exempt professional is that degree.  Management side practitioners must always start and end the analysis with that inquiry.
 

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In other blog posts, I have commented on a number of lawsuits, class action suits, filed on behalf of individuals who were hired as “interns” but who then claim that they were actually “employees” under the FLSA and should have been compensated.  There are definite criteria that have to be met for someone to be deemed an intern, rather than an employee, and if the putative employer does not comply with all of the factors, the person is not an intern.

Charlie Rose, the TV personality/interviewer and his production company have recently settled a class action filed by interns who charged that they were, in fact, statutory employees and were not even paid the minimum wage.  The case is entitled Bickerton et al. v. Charles Rose et al. and was filed in state court in New York

The theory was that the interns were being used as “substitutes” for paid employees.  The plaintiffs’ counsel took some joy in noting that “if the court approves the settlement, it will be the first class action settlement of a wage-and-hour case brought by unpaid interns.”  The lawyers for the Company pooh-poohed the action, asserting that cost of defending the suit would be onerous, indeed, more than the settlement value.  Thus, it would certainly appear that, from a pure business perspective, the settlement was the proper decision to make.

The Company issued a statement that observed that “many past interns have gone on to very successful careers.”  [The show's] interns are not employees; they did not perform 'work' for the program, and none of them ever expected to be paid for their internship."

From the settlement, each intern will receive $110 for every week they worked at the show, to a ceiling of ten weeks.  The Company secured the standard (and highly prized) non-admissions language.  The suit had been lodged under the theory that the Company intentionally misclassified these individuals as interns to reduce labor costs.  The plaintiffs maintained that since they were performing productive work, they could not be interns, where the emphasis on education, rather than production.For

This is one of a number of similar lawsuits, filed as class actions on behalf of interns allegedly misclassified (and allegedly misused).  The key here is that when you see a virus has started to spread, you (i.e. employers) should take heed and vaccinate yourselves.  In this case, that “vaccination” would be accomplished by measuring the activities and functions of any interns against the strict criteria under the Fair Labor Standards Act (and corresponding state laws), all of which must be met in order for the individual to truly be an “intern.”
 

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These are happy times for management side lawyers, I predict.  The U.S. Supreme Court has heard oral arguments on the issue of whether utilizing the Rule 68 FRCP Offer of Judgment procedure to, essentially, “pick off” the lead, named plaintiff in a FLSA collective action ends up undermining the validity of the entire class if that lead plaintiff turns the Offer down and the Court then dismisses the case for mootness.  The case is entitled Genesis HealthCare Corp. et al. v. Laura Symczyk and comes out of the Third Circuit..

This is a strategy that I have successfully employed, twice, in New Jersey, and that numerous other employers have done.  Some contend this is a way for the employer to get out “cheap” and acting “unfairly” in a FLSA collective action.  When the Third Circuit held in Genesis that this tactic was not appropriate, I have refrained from using it again.  I feel, however, that the Supreme Court is going to rule that the approach is permissible and that it is sanctioned by and under the Federal Rules of Civil Procedure.

The underlying case involved allegations that the automatic meal break deduction policy served to deny employees of compensation for lunch breaks allegedly missed but nevertheless deducted. The Company made a $7,500 offer that would have made the lead plaintiff whole for any of her missed lunches.  The federal district court ruled that the case was moot and dismissed it, but the Third Circuit held that the lawsuit’s “status” as a class/collective action injected a new variable into the calculus, as the lead plaintiff would still have some stake in the matter as the representative of all those similarly situated.

If the Supreme Court rules for the Company, it will be a boon to employers.  Defending FLSA collective actions is an extraordinarily expensive proposition (assuming the employer wins) and a doubly expensive exercise if the employer loses, as it is a fee shifting statute.  If the Court upholds the Third Circuit, however, employers will be barred from using this tool/weapon as a means of resolving FLSA cases at an early, cost effective point in the proceedings.

Why would the Court want to issue a ruling that only serves to facilitate protracted, inordinately expensive litigation and further crowding of already crowded dockets.

I don’t think it does.
 

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A federal judge has dismissed a FLSA class action lawsuit where the theory was the group of employees was improperly classified as exempt.  There were more than one thousand current and former KPMG LLP employees who could have potentially been class members.  The liability would have been, to put it mildly, geometric.  The case is entitled Pippins et al. v. KPMG LLP, and was filed in the Southern District of New York.

The judge concluded, in granting the defendant’s summary judgment motion, that the workers fell within the professional exemption and thus there was no legal obligation to pay them overtime. Many of the opt-ins possessed undergraduate and, in some cases, graduate degrees in accounting, business or finance.  They also received training from the Company and were all ready to sit for the CPA exam, which influenced the Court to reach its conclusion.  A CPA is, by definition, exempt under the FLSA regulations.

Judge McMahon noted that the “audit associates are not bookkeepers or clerks and they should not be treated as anything less than the professionals they both are and aspire to be.”  Waxing almost philosophically, the Court also pronounced that “they are well-educated and they are well-compensated.  They are not the sort of employees the FLSA was intended to protect.”

The case had been conditionally certified in early 2012, as the granting of this conditional certification is not an onerous burden for the plaintiffs.  The action gets more intense, however, and the burden to sustain the class more difficult as the defendant-employer then mounts a decertification attack or, as here, proffers a single magic-bullet theory to eliminate any and all putative plaintiffs.  In analyzing the employees fell within the exemption, the Court examined their actual job duties and concluded that there were performing audits at a professional level of expertise and meeting certain professional standards.  That, coupled with their educational achievements, compelled the Court to rule as it did.

Although the employees performed some clerical tasks, the Court found that these were minor duties and the “primary duty” of the employees remained their professional accounting work.  In a similar vein, if this “clerical work” is closely, integrally related to the “professional” work, it becomes part and parcel of the professional work being performed.

I applaud this result.  It is a rarity that plaintiffs mount a class action where there is a seemingly obvious defense, i.e. the professional exemption.  I imagine the thinking of the plaintiffs’ lawyers was that the amount of clerical work allegedly being done would so overwhelm any professional work performed, as to destroy the “primary duty” element of the exemption.

Not the case.  In this case.

 

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A FLSA class is usually conditionally certified.  The next tactical step for the employer is to seek that class’ decertification. If it succeeds in doing so, the case is over (subject to appeals).  The key to that effort is to convince the district court that too much individual scrutiny of class members is required so there does not exist the commonality, the “pattern or practice” that binds all class members together.

An employer has adopted this very technique in contending that a class of workers who claim they were misclassified as exempt should be de-certified because the court would be compelled to look at the duties discharged by each employee to ascertain what their primary duties were.  The Court would then have to determine they, that is to say, for each one of them, are exempt or not. The case is entitled Heffelfinger et al. v. Electronic Data Systems Corporation and was filed in federal court in the Central District of California.

The Ninth Circuit had upheld certification for one class of EDS workers but remanded this case to the district court judge, due to a concern relating to significant differences in the job duties/tasks of information technology employees.  The defense argued that ” the mere descriptions of those job categories” could not address or resolve the issue of whether all putative class members were exempt.  In this regard, the company contended that this class sought to include employees whose position descriptions were very similar to employees in another EDS class action where class certification was denied.

Thus, the company argued that individual scrutiny would be required for every member of the class, thus making its continuation as a class action inappropriate.  The plaintiffs have countered by alleging that these employees “do basically the same kind of thing, that is, computer programming, and that is the kind of duty the Ninth Circuit has said is not in and of itself qualitatively exempt.”

The issue has been joined on whether these employees fit within the administrative exemption, which is often the grayest and toughest to fit within.  This decision will turn on whether the putative class members performed administrative work for the Company’s customers.  The employer contends that this fact no longer supports a class, but rather the need for individualized scrutiny.

I can’t wait for the decision, hoping we get another defendant's road map for finding our way to the need for individual attention, and, therefore, the dismissal of the plaintiffs’ FLSA collective action.
 

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I have written before on these tip pool cases involving Starbucks and other restaurants where the tip credit (which allows an employer to pay a sub-minimum wage) is destroyed.  This happens because “improper” people (i.e. managers) share tips along with rank-and-file employees.  Suffice to say that the liability in these cases can be astronomical, because the employer must pay the difference between the tip credit wage, usually $2.13 per hour and the minimum wage ($7.25 under federal law).  The First Circuit has recently demonstrated how devastating this principle of law can be, ordering Starbucks to pay class action members $14.1 million in damages over tips that were improperly taken from them.  The case is entitled Matamoros et al v. Starbucks Corporation.

The class action was launched in 2008; the latest incarnation of this long-running battle goes back to March 2011, when the First Circuit ruled that the shift supervisors were actually managers, as that term is defined under the state law entitled the Tips Act; the same principles obtains under FLSA regulations.  Thus, they were precluded from sharing in the tip pools.  Indeed, the Court was rather harsh in its description of the Company’s defense.  The Court wrote that Starbucks' "protest is disingenuous.”  The Court further observed that “Starbucks is the architect of these tip pools, which flout the law and lump together eligible and ineligible employees. If there is an inequity, the fault lies with Starbucks — not with the Tips Act.”

The Company contended that because the shift supervisors spent a great deal of time doing the same work as their subordinates, i.e. making coffee, working the cash register, that their “primary duty” which is the FLSA test for the executive exemption, was not management.  The Court rejected this argument, as did the federal district court below.

The lower court decision, however, left both sides dissatisfied.  The Company appealed, claiming that summary judgment had been inappropriately awarded to the plaintiffs.  The plaintiffs cross-appealed, contending that the lower court erred by not giving them treble damages (as was allowable under the Tips Act).

A “manager” will still be deemed a manager, under the law, even if they perform a fair/large amount of non-exempt work, if they retain management/supervision as their primary duty, even when they are performing non-exempt duties.  This is a gray line, or perhaps a slippery slope, but employers have to be keenly aware of this legal doctrine, if they seek to defend a tip pooling case by contending that their managers have lost their supervisory status.

 

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A thorny and confusing issue under the Fair Labor Standards Act is that of when and how an employer can “round” employee work time down (or up) to accurately record employee work time and pay (or not pay) for that time.  In a significant case, a federal judge has dismissed a proposed nationwide class action in which factory workers sued H.J. Heinz Company on a theory that their hours were improperly rounded down and they were not paid for all hours worked.  The case is entitled Mendez v. H J Heinz Company LP and was filed in the Central District of California.

The Court ruled that the charges, i.e. that employees were compelled to report for work early, but this extra time was rounded down and not paid for, had no basis in fact but the Court is allowing the lead plaintiff the opportunity to amend the Complaint and get another bite at the apple or, more aptly, the ketchup bottle.

The Court concluded that, in order for a valid class action to lie, there must exist a pattern of systematic rounding down, or a showing that the rounding policies were applied/implemented in a manner that manifestly favored management.  In other words, if the rounding principles worked as they should (as envisioned by the FLSA) there would be evidence of rounding up as well as rounding down.  The Court found no evidence that this rounding procedure was a one-way street in favor of the Company.

The Court stated that “plaintiff alleges only that defendants have an unspecified 'rounding policy' that, together with defendants’ disciplinary policy, results in the nonpayment of wages for all hours worked, because the disciplinary policy incentivizes employees to arrive at work early.”  However, “plaintiff has not plausibly showed that the alleged policies result in a systematic underpayment of wages.”

The Court also rejected the contention that the matter was appropriate for a class certification, finding that, at worst, the alleged policy applied only to one facility, not to the entire State of California, much less the whole country.  The Court also give some guidance to the plaintiff on what he should “include” in the Amended Complaint (which will undoubtedly be filed).

The takeaway here is for employers to ensure that any rounding policy must be fair, i.e. if time is rounded down, there must/should be examples where time is rounded up, so that employees are fairly compensated over a representative period of time.  Through careful drafting of a policy and watchful and diligent oversight of its implementation, this can be accomplished.
 

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What happens when an overtime violation is found?  Well, as a management side practitioner, I want my client to come into compliance with whatever parts of the FLSA they are (allegedly) violating.  For overtime violations, I have found that one manner of remedy is to change employee work schedules so that they do not work overtime.  This can be a risky proposition if the DOL (or an employee) alleges that the change was in retaliation for the filing and prosecuting of wage-hour complaints.

The Eighth Circuit has breathed life into this “remedy” and has sanctioned its use.  In a FLSA collective action, a group of employees had sued, claiming that their employer’s decision to change their workweeks in a manner that cut back on their overtime hours violated the Fair Labor Standards Act. T he Court rejected this, concluding that the FLSA allowed such alteration of work schedules to achieve the “goal” of reducing overtime expenditures.  The case is entitled Abshire et al. v. Redland Energy Services.

The Court emphasized that where the change in schedule is intended to be permanent and was implemented in accordance with the FLSA, the motivation of the employer did not mean anything. The drill operators for this gas company used to work on drilling rigs for seven consecutive days; they then were off for seven days, with one weekend off every other week.  The Company then reduced the crew size and changed the work week from Tuesday-Monday to Sunday-Saturday. This reduced overtime because the employee work weeks would now fall into two separate payroll periods.

The employees charged that the FLSA forbade the changing of work week to reduce overtime.  The Company defended by asserting that this change placed all employees on the same workweek, engendered efficiency and (admittedly) reduced overtime outlays.  The Court concluded that the proffered reason was a legitimate business reason for changing its work week for payroll purposes.

This is an important remedial guidepost for employers. There is, as they say, more than one way to skin a cat or to cut overtime costs/exposure
 

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I happily note that a positive trend, in my view, is continuing.  That is to say, the defeating of FLSA collective actions by defendants asserting that there is not enough similarity in the putative plaintiffs to warrant their conditional certification into a class.  A federal judge has just rejected a motion for conditional certification, in which 65,000 employees, nationwide, tried to sue Steak N Shake, for overtime.  The case is entitled Beecher v. Steak N Shake Operations Incorporated and was filed in federal court in the Northern District of Georgia.

This was another of these off-the-clock cases, where hourly employees charge that they were not paid for all time worked.  The suit also charged that managers altered time records in order to “save” the overtime that would have otherwise been due.  Parenthetically, I should note that in these chain-store cases, so-called Burger King cases, the individual stores run on tight labor budgets and managers are judged by whether they adhere to these budgets, so there is intense pressure to stay within budget, sometimes resulting in off-the-clock work being done, or allegedly being done.

With that said, the Court concluded that that the plaintiffs had not shown that they were similarly situated to each other or that there was not a commonality, a system wide policy or company practice that could be the “glue” to hold the action together.  This was particularly applicable to the contention that a nationwide practice to falsify and alter records existed.

The court concluded that “even assuming, arguendo, that there exists a nationwide practice of reviewing and sometimes revising hours clocked in and out, and tips received, that is not enough glue to hold this proposed class together; neither is the fact that defendant generally discourages managers from allowing overtime work.”

Thus, the court found that the plaintiffs’ allegations required individual scrutiny because to adjudge the claims would mean to be to call numerous supervisors to testify to their particular practices on these matters.  Merely showing that the putative class members all utilized the same reporting system (and that all of the stores used the same internal reporting system) would not answer the key question of whether the employees were similarly situated or treated.  Thus, given the size of the class and the individualized nature of the allegations, there would have to be several thousand mini-trials, which would make the case unmanageable.  Thus, dismissal was warranted.

What I take away from this is that when faced with a nationwide class action, with thousands (or hundreds of thousands) of possible plaintiffs, the opportunity to argue no commonality/need for individual scrutiny may be actually enhanced.  Instead of being the terrifying specter that such a suit initially raises, it could actually be the salvation of the defendant-employer.
 

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A group of Gold’s Gym employees have filed a FLSA collective action.  Their theory, similar to a rising number of such suits, is that they were required to work off the clock.  The employees claim they have to work between 50-60 hours per week, but are only paid for forty.  The case is entitled Lane et. al. v. Gold’s Gym International Inc., and was filed in federal court in Texas.

In a somewhat ironic twist, the Complaint notes that the Company has a policy prohibiting employees from working more than 40 hours a week without prior approval and so, to comply with this policy, Gold’s general managers allegedly (and routinely) required workers to first clock out and then continue to work off the clock or, allegedly, to falsify their time records to show that they worked fewer hours than they actually did..

The lead plaintiff (still a current employee) alleges that he (and other supposedly similarly situated employees) were compelled to make monthly sales targets and to also train fitness consultants. Those duties required that they often had to work in excess of forty hours, but the Company typically refused to acknowledge any overtime claims.  The plaintiffs claim that this was a company-wide policy, which, under principles of FLSA collective actions, gives the class the commonality and similarity needed for conditional (and ultimate) certification.

On this point, the Complaint asserts that “although the named plaintiffs were employed by Gold’s at two of its San Antonio locations, sales managers at its facilities across San Antonio and the United States are believed to have all worked similar hours and were compensated under Gold’s common policy/scheme of not paying sales managers one and one-half of their regular rate for all hours worked over 40 in a workweek.”

There has been a veritable explosion of these off-the-clock collective/class cases, in many different industries.  We will see where this goes.  The institutional problem in the retail industry, any retail industry, is that oftentimes labor budgets are set tightly and managers (at all levels) are judged by whether they stay within these budgets.  It is this pressure that may drive the “need” for off-the-clock work.  There are procedures that management can implement, to both stay within budget, as well as the law, but a keen self-scrutiny of compensation practices and corporate goals is necessary.
 

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Maybe a trend is developing.  Maybe employer-defendants are starting to turn the tide of what seems like an incessant trend towards the granting of conditional certification in FLSA cases and the maintenance of those classes in the face of motions to de-certify.  I say this because a federal district court in Alabama recently decertified a class of Dollar Tree Stores managers who claimed they were misclassified as exempt employees.  The case is entitled Knott v. Dollar Tree Stores Inc filed in the Northern District of Alabama.

The defendant argued that the duties of each of the managers would need to be scrutinized and investigated to determine if their primary duty was management and if they fit within the exemption. Thus, the necessary and fundamental element needed to sustain a class—a common pattern, practice or policy, was missing.  The judge agreed.

The judge noted that “while Dollar Tree applied its executive exemption across-the-board, the defense is individuated in this case as plaintiffs’ job duties and employment experiences vary dramatically.  Although some may have performed uniform tasks mandated by a corporate manual, others routinely exercised their independent judgment, and the amount of time they spent performing managerial duties is a matter of individual.”

The court also sounded the death knell of the plaintiffs’ action by asserting that “because they performed a wide array of differing exempt job duties with varying degrees of importance, one group of them cannot reasonably be said to be representative of them all.”

The plaintiffs had argued that because an alleged majority of their time was spent doing manual labor, they could not be exempt.  However, this premise proved to be the plaintiffs undoing as the contention called for the very individual scrutiny that dooms a class action.  It should be noted that the plaintiffs had been granted conditional certification, which entails meeting a much lower, “lenient” standard.  The judge made plain, however, that the plaintiffs did not meet the more stringent second tier standard for the maintenance of a collective action.

The lesson, the strategy, is (again) plain for defense counsel.  Attack the alleged commonality.

Hard.
 

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Several months ago, an employer asked me why settlements under the Fair Labor Standards Act (“FLSA”) are typically accessible to the public.  I explained that these settlements must be approved by either a United States District Court or the United States Department of Labor (“DOL”) to constitute a valid release.  Since documents filed with the court are open to public access, many jurisdictions have reasoned that settlement agreements and motions to approve settlements should also be available to the public.

The Fifth Circuit’s recent ruling in Martin v. Spring Break 83’ Productions may be the first step in changing this view by the courts.  In Martin, the Fifth Circuit enforced a private settlement (not approved by either the DOL or the court) for unpaid wages under the FLSA. The Fifth Circuit reasoned that no approval was necessary because the wages owed to the employees were in dispute and could not be verified.  In that instance, the settlement agreement was not a compromise of guaranteed rights under the FLSA, but only a compromise of the employees’ claims.  Essentially, the Fifth Circuit differentiated between settlements of wage claims where the allegations could be substantiated and claims where the underlying facts are in dispute.

This decision could make the resolution of wage and hours claims much more appealing to employers as it would enable the parties to keep the terms of the settlement confidential.  Perhaps other jurisdictions will follow or adopt the Fifth Circuit’s reasoning.

To be continued…
 

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When I begin defending a Fair Labor Standards Act collective action, one of the first strategies I look for is to find some way to kick the named plaintiff out of the lawsuit, whether through, perhaps, a Rule 68 Offer of Judgment or a contention that they are not a valid part of the lawsuit and so the whole thing must go away.  The Sixth Circuit has recently shown that this maxim still holds true. The Court dismissed a collective action in which the lead plaintiff, a Nurse, had not filed the required consent form, i.e. opt-in, prior to the running of the statute of limitations (for the named plaintiff).  The case is entitled Frye v. Baptist Memorial Hospital Inc. et al.

The plaintiffs contended that they were not paid for working through their lunch breaks. The Court noted that the failure of the lead plaintiff to file the opt-in, although, on one level, a minor detail, yet doomed the lawsuit.  The Court observed that “redundant though it may seem to require consents from the named plaintiffs in a class action, the FLSA’s mandate is clear.”  The Court also affirmed the lower court’s decertification of the class, as there was not enough evidence to show that all members of the putative class were similarly situated.

The theory of the plaintiffs was that the automatic deduction of time for a lunch violated the law, but the Court duly noted that such a policy was itself compliant with the FLSA.  As such, the mere existence of the policy could not serve as the linchpin of an argument that all employees were similarly situated.  I believe this is extremely important, as there has been an explosion of class action cases involving so-called automatic lunch deduction cases.

It is also significant from the perspective of attacking the propriety of class certification simply because off-the-clock work may occur amongst a group of employees.  This is because the circumstances that lead to an employee working off the clock or through lunch are individual in nature and cause and this require individual scrutiny, which (as I have often preached) is the anathema of a class action attempt for certification.

The lead plaintiff had argued that the FLSA did not require him to file an opt-in and also that his attorney-services agreement and his deposition satisfied the requirement in a de facto manner. The Sixth Circuit soundly rejected that claim, noting that there was a qualitative difference between an individual action and a collective action.  The Court also specifically stated that an unsigned deposition did not constitute a written consent, although the Court noted that the FLSA does not dictate a particular manner in which the written consent must be done.

In sum, here there was a confluence of two very strong defense tactics—knock out the named plaintiff, by any means necessary, and, hit hard at the need for individual scrutiny. ff
 

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When a labor contract contains provisions that address wage hour issues (such as travel time, or donning and doffing time) a defense argument to dismiss a FLSA suit is that the suit is preempted by federal labor law.  This is essentially asserting that the wage hour issue is inextricably tied with contract interpretation so it for an arbitrator, not a court.  That principle was at the heart of a recent FLSA action where the judge declined the invitation to dismiss a lawsuit alleging overtime was not aid, because the court concluded that it was still an open issue whether the parties’ labor contracted barred the claims.  The case is entitled Fenison et al. v. Prime Healthcare Centinela LLC and was filed in state court in California.

“To avail itself of [a statutory exemption to the overtime law], defendant must establish, inter alia, that there is a valid collective bargaining agreement,” the judge found, in denying the employer’s summary judgment motion. “ There is a triable issue of material fact as to whether there is one. Plaintiffs have submitted evidence which they contend supports the position that there is not, while defendants contend that there is.”

The plaintiffs alleged that they were denied overtime. In California, prior to 2000, there was no daily overtime or “clock overtime” requirement, which means that employees working more than eight hours in a day were entitled to overtime (as opposed to forty hours in a week).  Then, in 2000, the law changed and clock overtime became the law of California.  The plaintiffs allege that the hospital, in response to the law, reduced the regular rate and added on a differential payment to avoid paying the hourly employees any more than it had done when the prior law was in effect, allege the plaintiffs.

The suit seeks to cover some fourteen hundred hospital workers who worked under the allegedly improper system since 2007.  The hospital moved for summary judgment, asserting the labor contract as a defense.  “Plaintiffs’ employment with Centinela has always been governed by the collective bargaining agreement. It follows that plaintiffs’ claims for unpaid ‘wages’ is completely barred by [the statutory exemption]”

The judge, however, denied the motion, finding that there had not been enough evidence submitted to demonstrate that there was a valid labor contract between the parties and that it controlled the issue sought to be litigated.  The court will, notwithstanding this ruling, allow the employer to file a new motion, accompanied by necessary affidavits, so the hospital may still prevail on the preemption defense.
 

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The health care industry seems to draw more than its fair share of class action lawsuits.  In another example of this trend, home-health workers have filed a FLSA class action in federal court, alleging that their employer misclassified them as exempt and thus improperly denied them overtime.  The case is entitled Cook v. Amedisys, Inc. filed in federal court in the District of Connecticut.

The theory of the suit is that the employer did not pay for actual hours worked but had implemented a point system for determining compensation.  Counsel for the plaintiffs stated that the Company’s “compensation scheme encourages employees to take on more patient visits and work longer hours, while Amedisys reaps the benefits by reducing their labor costs and boosting their profit margins.”  As the Company has more than four hundred locations and more than 16,000 employees (in 38 states), the potential expansiveness of this lawsuit is staggering.

The classifications of workers involved are home-health registered nurses, physical therapists, occupational therapists and speech language pathologists.  These employees are paid on a per-visit rate, with each visit worth between 1-2 points; there are “estimated” hours built into the system, based on an assessment of how long each type of visit should take.  Travel time is not paid for, nor is the time that must be taken to prepare necessary paperwork or to drop off the collected samples.  On the travel time issue, the complaint alleges that even travel during the day (which is clearly compensable under FLSA regulations) is unpaid.

This suit could be a real problem for the employer.  I do not believe that the exemption defense (i.e. professional) is available, as technician and technologist types of employees (with few, if any, exceptions) are non-exempt, notwithstanding that they may be highly skilled and have studied in specialized programs.

Even if the exemption argument is available, on the duties prong, the Company then has to establish that these workers are paid on a “fee basis,” which is an alternative to payment on a salary basis, which the exemption tests otherwise mandate.
 

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I just read of a report that notes that a record number of FLSA wage-hour lawsuits were filed in 2012  The report notes that more than seven-thousand FLSA cases were litigated, showing an increase from the year before.  If anyone thought that these kinds of suits were starting to slow down, the truth is they are still abundant, with a knowledgeable plaintiff-side bar looking for them, mostly. I think, on the Internet..

The numbers include both single plaintiff and collective (e.g. class) action cases.  There has been, however, an explosion of class actions, as oftentimes, there are numerous employees performing the same duties or with the same job title, especially if it is a company of size or spread out across the country.  The cases become somewhat formulaic, from a plaintiff’s counsel’s side, coupled with the risk that the employer will have to pay out large attorney fee awards the longer that the case goes on.  That is the reason this (to me) disturbing trend is continuing.

The report cited some reasons for this continuing supply of wage hour/overtime cases, such as the poor economy causing layoffs, sending unhappy workers to lawyers’ offices.  I think that is valid, but I agree more strongly with one of the other listed causes---a general ambiguity and grayness to the FLSA (and state counterparts) that makes it difficult for the most well meaning employer, who wants to comply with the law but makes (reasoned) judgments on exemption and working time issues that are all too easily alleged to be violative of the FLSA.

Coupled with the potential risk of large dollar damage awards and equally large fee applications, employers find it more prudent to settle, especially if there is some real risk and the case has not proceeded that far.

For an employer, the most proactive way to defend against such a lawsuit is to conduct a keen, objective self-audits, scrutinizing job descriptions and matching them up against actual duties, for exemption determinations as well as examining whether, if at all, pre/post shift activities are engaged in as they might be alleged to be “work.”  In this manner, employers can bestow upon themselves some measure of confidence that, although they may have to pay their lawyers to defend a case, they won’t be paying the other side’s!
 

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When employees work for two ostensibly independent employers, and the aggregate hours worked exceeds forty, overtime must be paid if the employers are “sharing” the employee or both deriving benefits from that employee’s work.  That is the doctrine of “joint employer” status.  Now, in a recent holding, the Third Circuit has set forth a new test for determining when a joint employer relationship exists under the Fair Labor Standards Act.  In this case, the Court concluded that Enterprise Holdings Inc. was not a joint employer with its car rental subsidiaries' and therefore the plaintiff assistant managers could not seek relief against the parent company.  The case is entitled In re: Enterprise Rent-A-Car Wage & Hour Employment Practices Litigation.

The assistant managers claimed they were improperly classified as exempt.  The district court granted summary judgment to the employer on the joint employer issue and the plaintiffs appealed to the federal appellate court.  In its groundbreaking opinion, the Third Circuit enumerated a standard that involves examination of the putative employer’s: 1) ability to hire and fire the relevant employees; 2) ability to issue and implement work rules/assignments; 3) ability to establish conditions of employment for the workers; 4) involvement in day-to-day supervision of workers, notably the right to discipline; and, 5) actual control of employee records, such as payroll, insurance, or taxes.

The Court took pains to point out that these factors are not exclusive and should not be rigidly applied.  The Court emphasized that if other factors demonstrated that an entity exercised significant control over a group of employees, then that evidence, when coupled with the enumerated factors, might be persuasive on the issue of whether a joint employment relationship exists.

Applying the test to Enterprise, which is the sole stockholder of 38 domestic subsidiaries, the Third Circuit found that it was not a joint employer of its subsidiaries' assistant managers.  The parent company had no authority to hire or fire assistant managers, no authority to promulgate work rules or assignments, and no authority to set compensation, benefits, schedules, or rates or methods of payment, the Third Circuit said.  Enterprise was also not involved in employee supervision or employee discipline and did not exercise or maintain any control over employee records, the appeals court said.

The Court rendered this ruling, notwithstanding that the parent company provided some services to the other entities, such as business guidelines, rental reservation tools, a central customer contact service, insurance, technology, legal services and some human resources services.  Even with all of these administrative-type services provided, it was still insufficient to establish joint employer status.  The main focus of the joint employer analysis is the control and direction by the putative employer on the employees, not whether it provided these ancillary support services.

I think this is very good from a strategizing posture, as well as a defense posture.  Now, management side labor lawyers will be better able to advise their clients how far they can go in their interfacing with and interacting with related entities (e.g. subsidiaries) and yet not be found to be joint employers under the FLSA.
 

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I have written many times about making Offers of Judgment in a FLSA collective action case, in an effort to eliminate the lead plaintiff and perhaps then dispose of the entire case before it escalates into conditional certification and beyond.  I had utilized the procedure to defeat such a motion and, as my client had fixed the procedure that was allegedly broken, we broke the back of any future possible class action.  Then, the tide started to turn and some cases came out holding that such an a tactic was an attempt to “pick off” the named plaintiff and unjustly and unfairly stymie the action.  The Third Circuit (where I practice) had in fact come down strongly against the use of the Offer as a means of disposing of a case.

Well, maybe things are going to change.  The United States Supreme Court has agreed to review this Third Circuit case to determine whether an employer's offer of judgment that fully satisfies the named plaintiff's FLSA claim moots the underlying collective action in a scenario in which the named plaintiff is the only party in the case and before he has moved for a collective action.  The case is entitled Genesis Health Care Corp. v. Symczyk.

The plaintiff worked for the Pennyback Center in Philadelphia and alleged that her employer automatically deducted a half-hour for lunch every day, notwithstanding that the employee(s) claimed that they often worked through lunch.  The Company answered the Complaint and, simultaneously, filed a $7,500 Offer of Judgment under Rule 68 of the Federal Rules of Civil Procedure.  The plaintiff rejected the Offer, although she conceded that it would have completely satisfied her alleged injury/claim.

The federal district court ruled that it had no jurisdiction and dismissed the entire case as moot. The Third Circuit reversed, ruling that this could allow employers to “pick off” the individual named plaintiff(s) before there could a ruling on whether class certification was warranted. Genesis has contended in its cert petition that this case presents “an ideal vehicle” to resolve splits in the federal Circuits as to whether such an unaccepted Rule 68 Offer of Judgment does moot the entire action.  The Fourth, Seventh, and Eighth Circuits would find the case moot, the Third, Fifth, Ninth, and Tenth Circuits would not.

Since Article III of the Constitution constrains federal courts to hear only actual “cases and controversies,” the theory is that once plaintiff turns down full relief, her case cannot proceed and as she has not achieved the granting of class certification, there is no case, unless another lead plaintiff is found.  This is rather straightforward law, but the Third Circuit seemed to inject a policy basis into its holding, taking strong objection to what it must have perceived as an “unfair” tactic to get out of a class action.  The problem with this reasoning is that FLSA collective actions are very different from Rule 23 class actions, where the Third Circuit found its support, because the FLSA lead plaintiff is not the “representative” of other allegedly similarly situated employees who may later join the suit.

I am hopeful that the Company will prevail.  I think, under Rule 68, it should.  How great would that be?

To be continued…
 

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I have written often about the application of the Supreme Court landmark ruling in Wal-Mart Stores v. Dukes to class action wage hour cases.  I have lauded the holding, noting that defense practitioners were successfully utilizing it in defeating motions for conditional certification in FLSA collective actions.  It now appears that Congress may be legislating away the holding in Dukes, as it has done for other Supreme Court decisions.

On the very anniversary date of the issuance of Dukes, Senator Al Franken, D-Minn., and U.S. Congresswoman Rosa DeLauro, D-Conn., introduced the Equal Employment Opportunity Restoration Act.  If this becomes law, it will liberalize the tests under which plaintiffs could seek relief in favor of a class or group in a discrimination lawsuit.

"American workers should have the right to hold their employers accountable when they believe they've been the victims of workplace discrimination," Franken said at a press conference.  "If workers can't seek justice without first proving an impossible standard, then justice is denied.”
The Congresswoman stated that the Dukes ruling “upended decades of judicial practice and precedent,” and “conflated the standards necessary for groups of employees to proceed together with discrimination claims with what has historically been required to prove the merits of the actual case.”

The bill stated that “the fact that individual supervisors, managers or other employees with authority to make personnel decisions may exercise discretion in different ways in applying a subjective employment practice under the covered employment statute shall not preclude a representative party from filing a corresponding group action under this section.”

If this bill becomes law, the adverse impact to this newfound employer defense/tactic is apparent.  I have stressed that the individuality defense, along the lines of the principles set forth in Dukes has worked wonders in defeating these motions.  Just as the spillover to FLSA was good under Dukes, the negative creep from the legislation (explicit or implicit) would likely undo the good (from my side) that the decision accomplished.

 

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There have been literally dozens and dozens of cases involving the exempt status of bankers, loan officers and other similar job classifications.  In a scenario that I find somewhat off beat, a HSBC Bank employee has filed a proposed collective FLSA action.  The category of employee are so-called “relationship bankers,” which is not the traditional kind of employee filing such a suit.  The theory, however, is very traditional.  The employee claims that he and similarly situated people were misclassified as exempt, worked more than forty hours on a regular basis, and were not paid overtime.  The case is entitled Hauer v. HSBC Bank USA and was filed in federal court in the Southern District of Florida.

The plaintiff stated that the relationship bankers earned a base salary.  Their job duties were primarily providing customer service.  That encompassed the solicitation of new customers, the opening of accounts and the selling of financial products.  They were classified as exempt under the administrative exemption.  The plaintiff alleges (as he must) that the failure to pay overtime was intentional and, therefore, a deliberate policy or practice that allegedly applied to all relationship bankers..

The suit seeks to add additional individuals employed as relationship bankers (from June 2009 forward) and is seeking, at this time, a nationwide class.  Significantly, this is not the first time HSBC has been sued over its overtime policies.  Last autumn, a fund accountant sued the bank, in another class action, also based on a misclassification theory.  In California, an operations officer had also filed a proposed state class overtime action, but that case was settled.

It appears that the only applicable exemption for the relationship banker position is the administrative exemption.  On that score, however, the duties they discharge appear to be the “white collar production” work that courts, in a long line of cases, have found is not suited for the exemption.  This is because their duties do not appear to impact “general business operations,” as required under the regulations.  Moreover, they appear only to exercise skill and appear to apply established methods to different factual circumstances, as opposed to using discretion and independent judgment.
 

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Since the Supreme Court decision in Wal Mart Stores, Inc v Dukes, there has been considerable litigation about whether its holding applies to other kinds of class actions, most notably FLSA class actions, with courts coming down on both sides of the issue.  Now, in a case involving a proposed class of loan officers, a federal judge has taken the view that Dukes is not dispositive on the class certification issue.  The case is entitled Myles v. Prosperity Mortgage Co., filed in federal court in the District of Maryland.

The judge rejected Prosperity Mortgage Company’s contention that Dukes applied to all class actions. Instead, the judge held that the Supreme Court holding in Dukes applied only to Rule 23 actions and not to the collective, opt-in action that makes a FLSA case unique (and somewhat different from the Rule 23 action).  The Dukes principles were certainly not germane to the question of whether so-called conditional certification should be granted..

The Dukes rationale focused on the premise that a class cannot be certified where each class member might be entitled to a different remedy from the defendant than other members of the class.  The judge found that “no local management discretion is at issue and no individualized inquiry is necessary to determine why individual loan officers were disfavored. " Thus, the class was homogeneous and not in need of scrutiny for each class member.  Conversely, in FLSA cases in which Dukes has been held to apply (as I have written about) the defense won based on an “individualized assessment” defense.

The plaintiffs claimed that they were misclassified and therefore denied payment of proper overtime.  Then, in April 2011, the Company changed their status to non-exempt and began paying overtime after forty hours.  This raises the interesting side note of whether this re-classification (whether voluntary or prompted by the lawsuit) could be used as “evidence” of a prior errant classification.  That remains to be seen.

My two cents as a management side practitioner.  Keep advocating the application of Dukes and the “scared” dogma that the need for individualized scrutiny undermines the viability of the proposed class.
 

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Since the Supreme Court decision in Wal Mart Stores, Inc v Dukes, there has been considerable litigation about whether its holding applies to other kinds of class actions, most notably FLSA class actions, with courts coming down on both sides of the issue.  Now, in a case involving a proposed class of loan officers, a federal judge has taken the view that Dukes is not dispositive on the class certification issue.  The case is entitled Myles v. Prosperity Mortgage Co., filed in federal court in the District of Maryland.

The judge rejected Prosperity Mortgage Company’s contention that Dukes applied to all class actions. Instead, the judge held that the Supreme Court holding in Dukes applied only to Rule 23 actions and not to the collective, opt-in action that makes a FLSA case unique (and somewhat different from the Rule 23 action).  The Dukes principles were certainly not germane to the question of whether so-called conditional certification should be granted..

The Dukes rationale focused on the premise that a class cannot be certified where each class member might be entitled to a different remedy from the defendant than other members of the class.  The judge found that “no local management discretion is at issue and no individualized inquiry is necessary to determine why individual loan officers were disfavored. " Thus, the class was homogeneous and not in need of scrutiny for each class member.  Conversely, in FLSA cases in which Dukes has been held to apply (as I have written about) the defense won based on an “individualized assessment” defense.

The plaintiffs claimed that they were misclassified and therefore denied payment of proper overtime.  Then, in April 2011, the Company changed their status to non-exempt and began paying overtime after forty hours.  This raises the interesting side note of whether this re-classification (whether voluntary or prompted by the lawsuit) could be used as “evidence” of a prior errant classification.  That remains to be seen.

My two cents as a management side practitioner.  Keep advocating the application of Dukes and the “scared” dogma that the need for individualized scrutiny undermines the viability of the proposed class.
 

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The United States Department of Labor (“DOL”) has announced that Viza Wash LLP, a San Antonio car wash, has agreed to pay $246,438 in unpaid minimum wages and overtime pay.  The DOL investigated the car wash between November 2008 and November and 2010, and found that, among other violations, it had made illegal deductions from employees’ paychecks for items such as uniforms, insurance claims, and cash register shortages.  As a result of these deductions, the employees’ pay fell below the required federal minimum wage.

This settlement provides yet another reason for employers to be concerned about docking employees’ paychecks, i.e. a potential minimum wage violation.  As discussed in an earlier entry, numerous states have laws specifically prohibiting deductions from employees’ wages in the event of cash shortages, loss of equipment, misconduct, the destruction of company property, and various other occurrences.  Additionally, the DOL has provided that docking an individual’s pay can result in the loss of an employee’s exempt status.

In light of these concerns, employers are best served by maintaining a policy of disciplining, rather than docking, employees who are responsible for loss, damage to company property, or for violating company policy.  Employers should consider that the potential liability for: (1) a failure to pay minimum wage; (2) a violation of state wage and hour law; or (3) the loss of an employee’s exempt status will likely far outweigh the cost of any lost or damaged company property.
 

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Vacation pay, PTO (Paid Time off) days, personal days, sick days. All of these benefits may or may not be paid out when employees leave their employment, whether such departures are voluntarily or not. Part of this answer depends on state law and part depends on the employer’s policy.  A recent $1.5 million settlement ending a class action lodged against Manpower Inc. franchisee Kane County Personnel Incorporated illustrates these principles.  The settlement covers a class of thousands in a case entitled Romo et al. v. Manpower Incorporated, filed in federal court in the Northern District of Illinois

The plaintiffs’ theory was that the company policy of only providing vacation pay after a minimum number of hours of work violated state law.  The Complaint alleged that if the workers ceased their employment prior to the reaching the minimum hours level, they forfeited their accrued vacation pay The claim was that the Illinois Wage Payment and Collection Act mandated that if vacation time vested, the employees were due a proportionate share of their accrued but unused time and the state law forbade a forfeiture.

The court had certified a class that covered employees employed over a seven-year period.  The members of the class were those who worked for the company and did not receive their vacation pay, after they incurred a break in service of 90 days or more.

When employers draft policies relating to paid time off, any kind of paid time off (e.g. sick days, personal days, vacation) they must be careful to account for what will happen to that time (i.e. paid out or not) when a separation occurs.   In drafting, the employer may also differentiate between separations that are voluntary and those which are not and in the latter case, may build in forfeiture provisions, meaning that if the employee is fired (or even quits without sufficient notice) the employee loses the accrued time.

But, and this is a big “but,” the employer must research any vagaries or requirements of state wage payment law (and/or precedent) that may not permit forfeiture provisions, such as in California, where such provisions are illegal.   Melding the desire to save payouts of accrued time in certain circumstances and state law requirements often can be a difficult task and it is probably better to err on the side of conservatism in these matters (i.e. allowing payout) than risk a class action where the costs of defending and the possible costs of paying the plaintiffs’ legal fees will geometrically increase the payouts that otherwise would have been mandated.
 

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Under the new FLSA rules (August 2004), exempt employees who work beyond forty hours or whatever their “regular week” is deemed to be may be given compensatory time, although there is no legal requirement to do so.  Non-exempt workers, however, must receive overtime in wage form and cannot be granted compensatory time, except under very strict and narrowly defined circumstances.

This principle has been tested in a recent federal lawsuit involving a major New York City law firm. In a recent settlement, the law firm of Schulte Roth & Zabel LLP has agreed to pay back wages and settle a class action filed by technical support employees who claimed they were not being paid overtime, but rather were given compensatory time.  The case is entitled McKenzie v. Schulte Roth & Zabel LLP, filed in the Southern District of New York.  The putative class encompassed forty-five desktop support technicians and under the draconian New York State statute of limitations, the period of recovery stretched from 2005-2011.

The suit’s theory was that establishment of banks of compensatory time violated the law. The settlement monies would be for those hours that were recorded as comp time.  There was little doubt that the employee (and other class members) was non-exempt as he performed work such as installing and troubleshooting computers and similar technical duties.  There are a host of cases holding such positions are non-exempt, not fitting either the professional or administrative exemptions.

The irony with private-employer compensatory time “banks” is that, often, employees would prefer paid time off to receiving cash overtime, which is (obviously) subject to deductions for taxes, etc.  No one usually complains about such arrangements, but it only takes one, as they say.  If a single employee complains to the DOL or files a lawsuit, then all “similarly situated” employees will be joined.  It will not be a defense to contend that “everybody liked it.”  The other danger is that this violation may expose a company’s other compensation practices (e.g. exemption classifications) to scrutiny and/or attack.
 

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On Monday, the Northern District of Alabama dismissed sixteen (16) individuals from a federal overtime lawsuit against Mercedes-Benz International Inc. (“Mercedes”) due to their status as “highly compensated” employees.  The Court determined that these individuals were exempt from overtime because they earned more than $100,000 per year and performed “office on non-manual work.”  The case is entitled Hicks v. Mercedes-Benz U.S. International Inc.

The decision is notable in that the “highly compensated” exemption is rarely the subject of litigation.  This exemption applies to certain, white collar employees who earn more than $100,000, and perform one or more of the duties required under the executive, administrative, or professional exemptions.  For instance, an employee who earns more than $100,000 annually will be exempt from overtime if he or she directs the work of two or more employees even though the employee does not meet the other requirements of the executive exemption.

In Hicks, the plaintiffs argued that the exemption did not apply to the sixteen (16) employees at issue because Mercedes included payments such as 401(k) contributions and insurance premiums in the compensation calculation.  The plaintiffs stated that “the only relevant indicator of any employee’s total compensation is the W-2 tax form.”  The District Court rejected the plaintiffs’ argument and held that pre-tax contributions, such as 401(k) contributions, are appropriately included in the calculation.

The lesson from this case is a simple one – employers should keep the “highly compensated” exemption in mind when considering the exempt status of employees.  Employers may discover that their generosity is finally being rewarded.
 

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In FLSA collective actions, every person who joins the suit must opt in by signing an opt-in form. Even the lead plaintiff must do that in order to officially be part of the class.  On several occasions, I have argued to plaintiff's counsel that the failure of the lead plaintiff(s) to themselves execute the op-in form has further eroded away that person’s possible recovery period and/or abrogated the entire class action.  (And it has worked). Now, in an interesting case that cuts against this premise, a federal judge has permitted a collective action filed by a class of exotic dancers to proceed, notwithstanding the failure of the lead plaintiff to sign and file the (I thought) required opt-in form.  The case is entitled D'Antuono et al. v. Genna and was filed in federal court in the District of Connecticut.

The employer had argued that the lead plaintiff, who separated in December 2008, never filed the consent form and therefore had not stopped the statute from running, effectively eliminating any recovery on her part.  This was consistent with the law, which mandates all plaintiffs sign in to the suit.  The plaintiff, Cruz, argued that a 2011 Affidavit she had submitted evidenced her consent to join the suit and should be taken as the equivalent of an opt-in form.

The court concluded that the affidavit was sufficient to meet the notice requirement and noted that the issue would not have even become a problem, if the consent had been filed when the complaint was originally filed.  The court stated that “despite this lapse, the court reads Ms. Cruz' affidavit broadly as implicitly verifying the complaint, expressing an interest that legal action be taken to protect her rights and expressing an interest in being a party plaintiff."

The lawsuit centers around allegations that the plaintiffs were not independent contractors, another in a long string of these so-called stripper cases, where the crux of the theory is that the employer did not properly pay minimum wage.  Some of the plaintiffs were ordered to arbitrate their claims on the basis of the holding in AT&T v. Concepcion, but plaintiff Cruz had not signed the "entertainment lease" that contained a mandatory arbitration clause.

The Court’s taking the Affidavit as a de facto opt in form is disturbing.  What other “slippage” will there be in the kinds of documents and filings that a court will accept as the equivalent of an opt-in form?  Put differently, a defense previously available to employers to defeat a class action by kicking out the lead plaintiff may be endangered.  We will see if other courts follow this lead, or whether this decision is more aberrational in nature.
 

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The surprise of the recent snowstorm in Southern California was nothing compared to the shock created by the California Supreme Court in its ruling in Brinker International Inc., et al. v. Superior Court.  The California Supreme Court found that employers must only make meal breaks available to their workers, but are not required to “ensure that the employee does not work.”  This is a much needed victory for employers, and one that could significantly reduce the number of wage and hour lawsuits filed by employees.  In particular, the decision removes any obligation by employers to police whether their workers take breaks, and could potentially eliminate claims for off the clock time during meal breaks.

In 2008, the California Supreme Court agreed to hear the case to clarify the meal break standard after an appeals court denied a class action of approximately sixty thousand employees.  The case, for the most part, hinged on the interpretation of California Labor Law § 512, which requires employers to provide meal breaks to individuals working more than five hours in a day.  The employer, Brinker International Inc. ("Brinker") maintained that it merely had to make the meal breaks available, and the plaintiffs argued that Brinker was obligated to make sure that its employees actually took these meal breaks.  In rejecting the plaintiffs’ argument, the Court held, in an unanimous opinion, “The difficulty with the view that en employer must ensure no work is done – i.e., prohibit work – is that it lacks any textual basis.”

The impact of this decision on wage and hour claims outside of California is difficult to predict.  While the California Supreme Court’s decision was based on its interpretation of the state’s Labor Law, counsel for Brinker has predicted that the Brinker International Inc. decision will have “significant implications” nationwide.  Since the question of whether employers are required to ensure that their workers take their meal breaks is not addressed by the Fair Labor Standards Act, or its regulations, its likely that courts in jurisdictions throughout the country will look to the case for guidance.

In the end, the Brinker International Inc. decision should not affect the manner in which businesses deal with meal breaks for their employees. The decision does not mean that employers do not have to pay employees for any time worked during a meal period.  Rather, the significance of Brinker International Inc. is that it places the burden on the employee to report any time he or she works during a meal break. 

For further discussion of the practical affects of this decision, read this post on our California Employment Law blog.
 

 

 

 

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I have written that it is a rarity that a class is denied conditional certification in a FLSA collective action.  When that happens, it is (often) the result of the individuality defense that is the best weapon to deflect the class.  Another way to defeat the motion for certification is to argue that the evidence submitted does not allow the conclusion that a bona fide “class” exists.  This principle has been recently applied in a case where the federal judge has denied conditional class certification for a proposed class of Assistant Managers claiming overtime. The suit alleged that these employees, who worked at Home Goods, were misclassified as exempt under the Fair Labor Standards Act.  The case is entitled Jenkins v. The TJX Cos. Incorporated and was filed in the Eastern District of New York.

The court ruled that the plaintiffs failed to prove that all of them performed (or did not perform) the kinds of duties that would entitle them to overtime.  This case highlights what happens when the support for the class (e.g. affidavits) is simply too paltry or insufficient to evidence the requisite commonality needed for a class to exist.

The evidence consisted of the lead plaintiff’s own testimony and a single page report submitted by a consultant that supposedly showed the breakdown of duties performed by the Assistant Managers.  The court ruled, quite correctly, this was not enough to sustain a viable class.  The court stated that “although plaintiff's burden at this stage of the proceedings is modest, the court cannot justify certifying a class of plaintiffs, likely numbering in the hundreds, on the basis of such thin factual support.” This is very important because the initial showing for the conditionally certified class is low, but this minimal showing did not even meet that reduced standard.

The submission by the so-called “expert was also criticized by the court.  The report was so vague that no valid or credible conclusion could be drawn from it; any conclusion that could try to be drawn would only be speculative.  The report was skimpy to the point of not providing any context or explanation of the conclusions or findings.

The plaintiff alleged that he (and others) were routinely performing all manner of non-exempt tasks, including cleaning/sweeping, unloading trucks and taking out garbage.  If these tasks comprised a major portion of the work time (judged on a weekly basis) of the employees, their exemption would be undermined.  The failure to buttress these allegations with anything other than the scanty evidence discussed above, however, doomed the case to failure.  As the court found, [the plaintiff] has failed to provide any factual support for the contention that other [Assistant Managers] at Home Goods' stores in New York, let alone nationwide, primarily performed nonexempt tasks.”

The lesson learned here is that defense counsel must scrutinize, tear apart and attack the initial showings made by the plaintiffs.  Herein, plaintiffs’ counsel did the defense a favor by rendering such a flimsy showing of “evidence.”  This scrutiny, coupled with a corollary attack based on the fatal (to the class) need for individual assessment, gives defense counsel the best chance to defeat a motion for conditional certification.

 

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I have been asked on several occasions whether illegal aliens, or unauthorized immigrants, can sue for unpaid wages under the Fair Labor Standards Act (“FLSA”).  Employers are typically shocked when I tell them that the FLSA covers all workers, regardless of their immigration status. The Southern District of New York, in a recent ruling, not only reiterated my statement, but took it a step further, in holding that the immigration status of FLSA plaintiffs cannot be entered as evidence at trial.

Last week, the United States Department of Labor (“DOL”) announced that it had obtained a judgment in Solis v. Cindy’s Total Care, Inc. requiring nail salon, Cindy’s Total Care, Inc., to pay $235,920 in unpaid overtime and liquidated damages to thirty two (32) current and former employees. The lawsuit arose out of an investigation by the DOL that found that salon employees worked more than 40 hours in week but were not paid overtime.  Instead, the employees were paid a fix daily rate regardless of the number of hours worked.

During the trial, the salon attempted to introduce evidence showing that various plaintiffs were illegal aliens.  The court prohibited the introduction of this evidence as irrelevant.  In particular, the court noted that the FLSA expressly protects “any individual,” and does not exclude non-U.S. citizens or undocumented workers.

Solis v. Cindy’s Total Care, Inc. highlights the fact that employers can face liability from undocumented workers just as easily at it can from documented workers.  Any hope that employees will shy away from bringing a lawsuit based on his or her illegal status is simply not realistic.  Rather, the courts and the DOL seemingly provide undocumented workers with a safe harbor to pursue claims for violations of the FLSA.  Similarly, as seen in Solis, employers should be wary of relying on any defense that attempts to ruin the credibility of an FLSA plaintiff based upon his or her immigration status.
 

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In FLSA collective action cases, there has been a doctrine of law prevalent for a number of years. Federal claims and state law claims are not compatible and cannot be maintained in the same lawsuit.  I have successfully moved to sever New Jersey state claims when made components of a FLSA action.  What that does is to erode away the state statute of limitations, while the motion is pending and decided.  The Third Circuit, in a case entitled Knepper vs. Rite Aid Corporation has now changed this longstanding principle.

This brave new world has emerged because the Third Circuit has held that state law class-action, overtime claims and FLSA collective action claims were not, ab initio, incompatible.  In a precedential opinion, the Third Circuit has reversed a district court, which was following the long-established rule.  The Court “disagree[ed] with the conclusion that jurisdiction over an opt-out class action based on state-law claims that parallel the FLSA is inherently incompatible with the FLSA’s opt-in procedure.”  Although the Court reversed on the inherent incompatibility issue, it affirmed the portion of the decision finding that the FLSA did not preempt state law on this matter.

The plaintiffs were Assistant Managers and had opted in to the FLSA collective action.  They then filed state law claims in Maryland and Ohio.  The plaintiffs contended that under the Class Action Fairness Act, the state law claims could be maintained due to diversity jurisdiction and allowed to proceed, although the actions would be parallel to the federal case.

The district court held that the Rule 23 opt-out class actions, founded on laws that provided the same remedies as the FLSA, were incompatible with opt-in process of the federal court..  The lower court extended the incompatibility doctrine because it had usually been applied to scenarios in which the federal and state claims were filed together, i.e. the hybrid cases.  In this situation, separate state lawsuits were instituted.

The Third Circuit disagreed. “We join the Second, Seventh, Ninth and D.C. circuits in ruling that this purported 'inherent incompatibility' does not defeat otherwise available federal jurisdiction."  I disagree.  I think this is a way of giving plaintiffs the ability to circumvent the FLSA, which is the reasoning adopted by the courts that had applied the doctrine in these hybrid cases.
 

More to follow, I am sure...

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I have often written that conditional certification in a FLSA collective action is fairly easy to get and de-certifying a class is difficult, once that conditional certification has been achieved.  Well, every rule has its exceptions.  A federal district court judge has recently de-certified a class of IBM call center employees who were claiming compensation for preliminary work.  The case is entitled Seward v. IBM Corp. and was filed in federal court in the Southern District of New York.

The court concluded that too much individual assessment was warranted, thus destroying the needed commonality for the class to exist.  The court stated that the “plaintiff did not show he shares common factual and employment settings with all of the opt-in plaintiffs due to the existence of a sufficiently uniform and pervasive policy requiring off-the-clock work.”

The plaintiffs had requested that the judge assign them to sub-classes as opposed to a single “large” class, but as they had not raised that issue before the Magistrate Judge (who had issued a report recommending de-certification) the Judge refused to consider that request.  The response from the plaintiffs is that they will file individual suits.  Their lawyer asserted that they "intend to file dozens of individual cases to protect our clients' rights."

This case is similar to others I have posted on and is typical of this new wave of class action suits based on off-the-clock working time that is allegedly not being paid.  The lead plaintiff claimed that he (and the others) were not compensated for their time booting up their computers and the computer programs that were necessary for them to do their work.  Thus, their theory is that these preliminary activities were integral to the performance of their primary job.

The company seized upon the “individual” defense.  It argued that the workers worked on a number of different teams, in different departments and also their work procedures differed as well.  The Magistrate Judge agreed, finding that there was not the requisite commonality or overall practice that required off-the-clock work.  The Magistrate found that as there were differences in their job duties, as well as management expectations of the various teams, commonality was lacking.

I applaud this result.  I emphasize again that the first line of defense in collective actions is the individuality theory.  A caveat----don’t wish for something because you may just get it. If the defense succeeds in destroying the class, the employer, as here, may be faced with and left to defend dozens (or hundreds) of individual lawsuits.
 

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In FLSA cases, the plaintiff will often sue not only the Company, but its owners and/or officers as well.  I know from personal experience in defending these cases that clients often are motivated to settle because they fear the specter of possible personal or individual liability.

The recent case involving the owner of Gristede’s Foods Incorporated illustrates this maxim in a graphic manner.  He has appealed to the Second Circuit Court of Appeals, arguing that he is not an “employer” under the Fair Labor Standards Act and thus should not be held liable for any portion of the $3.5 million settlement just arrived at to resolve overtime employees who were pursuing a class action.  The case is entitled Torres et al. v. Gristede's Operating Corporation.

The CEO, John Catsimatidis, argues that he should not be liable to payments to the more than five hundred Department Managers (who were allegedly misclassified as exempt) because the day-to-day operations were handled by his deputies and their deputies and so on.  Thus, he disclaimed any operational control at the level where the working conditions, job duties, and, most importantly, hours, of the employees were regulated and directed from.  A lower federal Court had ruled in September 2011 that he “retained” retained control of the daily operations of the various stores and thus he was an “employer” as defined under the FLSA.

The CEO’s appeal focuses its attack on the legal standard used by the District Court.  He urges that the district court had applied the wrong legal standard and should have used the so-called “economic reality” test, which is the test used to determine independent contractor status under the FLSA.  The CEO argues that this test would zero in on an owner’s “actual relationship” with employees.  The appeal papers urged that “the district court did not apply the 'economic reality' test or focus on Catsimatidis’ relationship with the store employees in question. Instead, it looked at Catsimatidis’ overall corporate control and supervision.”  The evidence showed that for over a decade, the CEO has not played a role in hiring or firing decisions, did not make payroll decisions and did not negotiate with the labor unions representing the employees.

An affirmance would pose a danger for employers because it would expose controlling shareholders to liability in scenarios in which they may exercise general oversight of Company operations but are not “on the ground” in a particular store or facility (where decisions about exempt status and work hours may be made).  The Company claims that the “FLSA does not contemplate such disdain for the corporate form.”  On the other hand, the buck (all three million of them) may stop at the top.

To be continued.
 

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I have written many times about class actions for claimed working time and the great danger of these “subtle” kinds of violations that then explode on the employer.  Call centers gave been especially hard hit with this new wave of collective actions.  Another example.  A class of customer service representatives has been conditionally certified in Virginia.  Their theory is that their employer refused to pay for extra hours worked “off-the-clock.”  The case is entitled Hargrove v. Ryla Teleservices Inc., and was filed in the Eastern District of Virginia.

The employees claim that they were required to report early, before their shifts and engage in necessary work-related activities, which were not paid for.  They claimed that had to boot up the computers, plan schedules and review and respond to work-related e-mails.  If these preparatory tasks are "integrally related” to performance of the employee’s principal job duty, the tasks may be compensable, especially if the employees are “ordered” to perform these preliminary (or postliminary) duties.

Evidence of the widespread nature of this problem is that this is the seventh class action against this company, with conditional certification already granted in four cases.  The magistrate had originally recommended conditional certification be ordered; the Company appealed to the District Judge, who found the ruling was not clearly erroneous and allowed it to stand.

The Complaint has alleged that “supervisors explained to the employees that performing unpaid work activities was required because it was expected and was part of the job.”  The Complaint also estimates the amount of extra work performed as 10-20 minutes each day.  However, the workers allege that the overtime hours were not recorded or paid for.  The Complaint also maintains that the employees faced poor performance evaluation if they were not ready to take calls when their shifts started, meaning that they had to perform the preliminary work.

The key (again) is the amount of employer compulsion.  It is concerning to me, as a management side advocate, that the employees would allegedly suffer poor performance evaluations if not at their desks, ready to take calls, at their assigned start times.  This would enhance their argument that they were required to perform preliminary tasks that were tied to their main job and were mandated by their employer.  That combination equals (in all likelihood) significant liability.
 

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Nowadays, an intern is a good thing to be.  The young person gets some experience for a resume and the “employer” gains some productive work accomplished as part of furthering the person’s education.  When the line is crossed and the issue becomes money, not getting “experience,” the putative employer must be able to defend its decision not to compensate these people when judged against a series of defined regulatory criteria that define what an intern is under the law.  A recent example of this is the suit filed by a former unpaid intern at The Hearst Corporation suing on behalf of herself and hundreds of other similarly situated people.  The case is entitled Wang v. Hearst Corporation and was filed in the U.S. District Court for the Southern District of New York.

The lead plaintiff had interned for Harper's Bazaar.  She claimed that she worked on a full-time basis, i.e. fifty-five hours and claims she was never paid, notwithstanding that she performed job duties that regular employees should have been doing.  The Complaint labels this class of interns as a “crucial labor force” for Hearst, which publishes dozens of magazines, here and abroad.

The plaintiffs’ counsel asserted that “unpaid interns are becoming the modern-day equivalent of entry-level employees, except that employers are not paying them for the many hours they work.”  In this regard, the lead plaintiff, Ms. Wang, who was the head accessories intern, claims that she assisted at photo shoots and managed samples given to Hearst by fashion houses.

There are a number of criteria, under federal law, that are utilized when determining if so-called interns are actually statutory employees who must be paid at least the minimum wage (and overtime).  What they default down to, on a more global level, is that the internship is designed to enhance the education of the person without a substantial benefit inuring to the employer, in the form of productive work, which could and should be done by regular employees.  The Company is defending on this “educational” basis, asserting that it requires the interns to be enrolled in a university program and receive credit for their time spent at the company.

Be aware that Departments of Labor also focus on the presence of interns and scrutinize whether these people are employees or not.  There are other consequences for misclassification, beyond the minimum wage and overtime that would have to be paid back, such as unemployment and workers compensation issues.  Conducting an internal audit of any such intern positions, judged against the regulatory criteria, will provide necessary guidance.
 

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There has been a lot of legal news being made recently concerning arbitration agreements and the Fair Labor Standards Act. Many of these cases have gone for the employer.  In a recent case, however the Fifth Circuit on ruled that a class action could proceed judicially, despite the existence of an arbitration provision, where the arbitration agreement included an “escape hatch” for the Company that rendered the agreement unenforceable.  The case is entitled Carey v. 24 Hour Fitness USA Inc.

The problem was that the agreement permitted the Company to retroactively change the agreement or completely terminate it.  That unilaterally reserved right to change the terms and conditions of the employees’ employment showed an improper balance of “fairness” weighed disproportionately in the employer’s favor.  The Fifth Circuit stated that if “an employee sought to invoke arbitration with the company pursuant to the agreement, nothing would prevent 24 Hour Fitness from changing the agreement and making those changes applicable to that pending dispute if it determined that arbitration was no longer in its interest.”

The Company had sought to compel individual arbitrations, under the policy in the Employee Handbook and it asked the Court to honor the arbitration provision.  The lead plaintiff countered by contending that the arbitration clause was illegal under Texas law because one party could avoid arbitration (possibly depending on its view of whether it was going to win the case).  The district court agreed and the Company appealed.  The Company argued that the arbitration provision was proper because the Company was duty-bound to notify the employees of the changes and secure their acknowledgment of those changes.

The Fifth Circuit disagreed, concluding that these procedures did not save the provision from being “illusory.”  The Court held that “the fundamental concern driving this line of case law is the unfairness of a situation where two parties enter into an agreement that ostensibly binds them both, but where one party can escape its obligations under the agreement by modifying it.”

The lesson for employers is simple—make any arbitration provision one that is genuinely fair and does not allow wholesale, unilateral modification.  I believe the strategy of channeling these claims into arbitration is often the right one, but not if the employer starts out with a serious, self-induced, obstacle.
 

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I have written several times about Assistant Manager class actions being quite difficult to defend because these employees often perform a great deal of “subordinate” type work, making the issue of “primary duty” a tricky one.  In a recent class action involving these employees, a federal judge has denied a motion for conditional certification (which does not often happen) on the basis that the lead plaintiff Assistant Manager was not similarly situated to the people he tried to represent. The case is entitled Guillen v. Marshalls of MA Inc and was filed in the Southern District of New York.

The plaintiff had claimed that the violations were willful, thereby entitling him (and the other opt-ins) to a third year of recovery.  Then, going after the primary duty requirement, the plaintiff alleged that he devoted the bulk of his time to non-exempt tasks such as janitorial work and unloading trucks.

The deficiency in the plaintiff’s motion, however, was that he failed to show that Assistant Managers throughout the country were performing their jobs in precisely the same manner.  Put differently, there was not a strong showing that Assistant Managers elsewhere were discharging non-exempt duties.  The court stated that “Guillen’s latest motion adds virtually no evidence suggesting that Guillen is similarly situated to ASMs in Marshalls stores nationwide with respect to the main contention in this case: that he was required to perform tasks that rendered him nonexempt from the FLSA’s overtime requirements.”

The court noted that there was nothing in the job description for this classification that required the performance of non-exempt work that the plaintiff alleged was done.  There was no evidence of any nationwide requirement(s) in this area as well.  The plaintiffs could not find a companywide policy that would apply to all of these employees.  As I have often noted, that is the anathema for an employer defending such a case. In this case, there could have been thousands of employees employed in these jobs across the country and without a showing of commonality (i.e. a policy), there would be a need for individual scrutiny of what each employee actually did.

What this case again reinforces for me is that the knee jerk reaction of any company defending a FLSA collective action should be to look for and solidify all evidence of the dissimilarity of the lead plaintiff and the “others.”  Company compensation policies should also be examined and, if need be, appropriately revised.
 

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In a recent case, a federal judge in New York has allowed a class action to proceed for thousands of employees who allege that they were misclassified as exempt by an accounting firm.  The case is entitled Pippins et al. v. KPMG LLP and was filed in the Southern District of New York.  The judge also ordered that the Company turn over a computer-readable list of the names and contact information for possible opt-in plaintiffs.

The judge found there to be commonality because the accounting field is governed in large part by a number of regulations and standards that would render the plaintiffs as “similarly situated.”  The court noted, however, that “the uniformity does not mean audit associates are entitled to overtime.” The Company has claimed that these employees are exempt under the administrative and/or professional exemptions.  The Company also defended by asserting that, because each employee’s duties may have differed, there would be required an individualized scrutiny as to what each employee did, thus destroying the necessary element of commonality.

What is important is that the “individualized” defense may ultimately prove to be successful, although at the conditional certification step, a court is not focusing on these individual differences but rather looking at what elements of commonality may be present, such as similar educational backgrounds and similar training regimens.

The plaintiffs (naturally) contend that they performed clerical-type work, which was routine and repetitive.  They claimed that “all” they do is do basic reviews of documents and financial records.  I imagine the Company will defend not only on the individual scrutiny basis but will also try to knock out as many plaintiffs as it can but pointing to the higher levels of education they possess, the degrees and certificates, which will evidence that they do more than just “clerical” work and are using their advanced education (college or above) to conduct financial analyses, (which is the essence of an administrative or professional defense) and not just crunching numbers.
 

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On March 22, 2011, we posted an article about the US Supreme Court holding in Kasten v. Saint-Gobain Performance Plastics Corp.,  in which the Court held that a retaliation cause of action could lie even if the complaint was not in writing, but was made verbally.  We cautioned about the danger of that holding for employers.  Now, the US Department of Labor has issued  Fact Sheet 77A codifying this holding in DOL guidelines.  The Fact Sheet makes clear that oral complaints are protected and internal complaints to the employer, as opposed to (or, in addition to, complaints to the DOL) are also protected.

The Fact Sheet also makes clear that the retaliation protection applies to all employees of an employer even in those instances in which the employee's work and the employer are not covered by the FLSA.

The Fact Sheet also makes clear that the retaliation protection applies where there is no current employment relationship between the parties, such as an instance where there is alleged retaliation against an employee by a former employer.

Now that this holding has been formalized in DOL guidance and will "enjoy" widespread dissemination, my recommendation is that employers implement a mechanism (similar to the complaint mechanism in anti-harassment policies) where employees may complain about pay errors, or classification issues, or working time issues.  These complaints would then be investigated and if found to have merit, an appropriate remedy issued to the employee.  The important point is that even if the complaint is made orally, the employer (e.g. HR Department) should reduce the complaint to writing so there exists a record of what was complained of, the action taken and the resolution.

 

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Last week, the Southern District of Texas denied a motion by Power Line Services Inc. (“Power Line”) to dismiss a class action alleging that the company improperly docked employee paychecks.  The claim arises out of a company policy permitting Power Line to make payroll deductions for any charges made on a corporate credit card for which an employee fails to provide an itemized receipt.  The lawsuit is entitled Thurmon, et al. v. Power Line Services Inc., et al., and was brought under the Fair Labor Standards Act.

The complaint alleges that Power Line regularly made improper deductions from the paychecks of exempt employees for failing to comply with its receipt policy.  These deductions range from $3.44 for a lost receipt from a convenience store to $2,500 for repairs to a company issued truck. The named plaintiff in the lawsuit, Jerry Thurman, claims that these payroll deductions evidence that he, as well as other individuals, were improperly classified as exempt employees.  As a result, Thurman is seeking to recover unpaid overtime.

This lawsuit highlights the danger of docking an exempt employee’s pay.  In 2006, United States Department of Labor (“DOL”) issued an opinion letter stating that “any employer policy that requires deductions from the salaries of its exempt employees to pay for the costs of lost or damaged tools or equipment” constitutes an “improper deduction,” thereby invalidating the exempt status of any affected employee.  While the opinion letter only addressed deductions based on lost or damaged equipment, employers can expect the DOL to take a similar stance with respect to any deductions resulting from infractions of company policy.  Put simply, the DOL will likely prohibit any payroll deduction that can be viewed as a penalty.

As discussed in my earlier posting on this subject, employers are best served by maintaining a policy of disciplining, rather than docking, employees who are responsible for lost equipment or a violation of company policy.  Employers should consider that the potential liability for the loss of an employee’s exempt status will likely far outweigh the cost of any lost or damaged property.
 

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I have been representing an employer in a class action in which Registered Nurses, paid hourly, sought overtime.  We won on summary judgment at the trial court, on the strength of two New Jersey Department of Labor Opinion Letters (one going back to 1975), that held that it was the DOL’s interpretation that as long as the Nurses (or other professionals) performed “professional” work, they were exempt from overtime provided they made the minimum amount required (i.e. $400 per week).  The claimed liability reached into the hundreds of thousands of dollars.  In sum, on the basis of two pieces of paper, we succeeded in securing the dismissal of the case.  The case is entitled Anderson v. Phoenix Health Care, Inc., A-2607-10T2 (N.J. App. Div. Nov. 16, 2011).

On November 16, 2011, the New Jersey Appellate Division affirmed this lower court holding.  The Court noted that courts should defer to an agency’s interpretation of its own laws and regulations if that interpretation was not “plainly unreasonable.”  Against that framework, the Court held that this interpretation was not, in fact, “plainly unreasonable,” even though hourly payment was not ostensibly “allowed” by the applicable regulations.  The Court reasoned that the “critical question is whether the employee is a professional, not whether that professional’s compensation is determined by reference to an hourly rate instead of a salaried rate.”

The Court also concluded that, even if this longstanding, i.e. almost forty years, interpretation was not reasonable, my client could avail itself of the safe harbor, good faith exception found in New Jersey law (and the FLSA and, more likely than not, the wage hour laws of many States).  That good faith exception provides “immunity” for a defendant when that entity has conducted itself in reliance upon or in conformity with interpretations or enforcement practices of a the relevant agency.  That is what my client had done in this case.

So, in essence, we used the Opinion Letters for both of these purposes, in an offensive manner, as a sword, rather than a shield.  First, we argued that the interpretation was not unreasonable, but even if we lost on the ground, we claimed the refuge of the safe harbor.  The lesson for employers is that if they wish guidance on a certain point of law, securing an Opinion Letter provides not only guidance, but also protection, even if the logic or reasoning of the Letter is ultimately struck down by a Court, the particular employer that conducted itself in accord with the Letter will not be held liable.

The irony in this is that as New Jersey has now adopted the FLSA regulations (as of a few months ago), this defense would likely not be available to an overtime claim filed by an hourly paid Registered Nurse.

 

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The U.S. Supreme Court’s recent holding in AT&T Mobility LLC v. Concepcion has been increasingly used by employers in defending against and, in seeking dismissal of, FLSA collective actions.  This tenet received new emphasis in a recent decision by the US Supreme Court in which the Court vacated a California court decision holding that an employee could proceed before the California Department of Labor Standards Enforcement (DLSE) with wage claims against his employer, notwithstanding that he had executed an arbitration agreement.  The case is entitled Sonic-Calabasas A. Inc. v. Moreno in the U.S. Supreme Court.

The Court sent the case back to California state courts for further processing in light of the April 2011 decision in Concepcion.  The essence of that earlier holding was that “states cannot require a procedure that is inconsistent with the [Federal Arbitration Act], even if it is desirable for unrelated reasons.”  Counsel for the plaintiffs stated that he could not understand how the Concepcion holding applied to the facts of the case.  The case involved a claim by an employee against a car dealership for allegedly unpaid vacation days.

Although he had signed an arbitration agreement, the employee submitted an administrative wage claim with the DLSE, under the state Labor Code.  The Company petitioned state courts for an order compelling arbitration.  The Company argued that the worker had waived his right to proceed judicially and had to utilize arbitration for a resolution of his claim..

Although the Concepcion holding applied to a consumer transaction, where arbitration provisions are commonplace in consumer contracts, a number of federal courts have extended its reach to collective and class action overtime cases.  In this case, the rationale was applied to a wage payment action where no wages are sought but rather only accrued vacation time.

I am still cautious, however, about urging clients to incorporate arbitration provisions and class action waivers in every employee handbook as I worry about the specter of a dozen (or hundred) individual employee arbitrations where the claims and defenses are the same, which is why the “class action” manner of proceeding was “invented.”
 

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On November 7, 2011, the U.S. Chamber of Commerce (the “Chamber”) filed an amicus brief in support of the motion by KPMG LLP (“KPMG”) to set aside the Southern District of New York’s denial of its application for a protective order.  The protective order sought to limit the number of employee hard drives that KPMG is required to preserve while awaiting a decision on the plaintiffs’ motion for collective action certification.  Specifically, KPMG requested to preserve a random sampling of 100 hard drives rather than thousands of hard drives.  The Court denied KPMG’s motion even though the cost of preserving the hard drives is extremely high (e.g. KPMG has spent more than $1.5 million on maintaining these hard drives since January 2011).

The lawsuit, entitled Pippins, et al. v. KPMG LLP, is brought by a group of former auditors who allege that KPMG intentionally misclassified entry level auditors as exempt to avoid paying them overtime.  The hard drives in question contain data relating to the employees’ job duties and activities. By all accounts, such information is necessary to determine whether the employees fall within one of the exemptions to the overtime requirements under federal and state law.

The Chamber argues that the Court erred in denying KPMG’s for a protective order.  The Chamber asserts that the Court ignored the “test of proportionality,” which requires courts to restrict discovery when the cost outweighs the potential benefits.  Additionally, the Chamber claims that the Court incorrectly labeled each of the potentially thousands of class members as “key players.”  The Chamber explains that the identification of “key players” should be used to “focus discovery” and achieve “savings in time and expense.”  However, this did not happen in Pippins.

Employers should be crossing their fingers that the decision by the Court is set aside and the protective order entered. Should the decision stand, employers may be required to preserve the hard drives for every potential class member in a lawsuit. This could result in a company being ordered to maintain hard drives for tens of thousands of employees going back three years, or possibly longer. The cost of such an exercise would be astronomical.
 

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After a three-week jury trial, Southern New England Telephone Company has won a verdict finding that employees who were titled as field managers and classified as exempt, were in fact exempt under the Fair Labor Standards Act and state law.  This case is significant because, as a rule, first-level managers are often in reality “working foreman” type of workers and are usually found to be non-exempt.  The case is entitled Perkins et al., v. Southern New England Telephone Company and was filed in federal court in the District of Connecticut.

Under the FLSA, employees classified as executive exempt must supervise at least two workers on a full time and direct basis, must have input into or authority over different personnel decisions, such as hiring, firing, compensation, promotion, etc and must have management as their primary duty.  With first-level managers, the problem (for defense counsel) often arises because these managers do the same kind of work as their subordinates so the primary duty factor often is an issue.

The plaintiffs had claimed that they were merely given the title of manager and were, under that umbrella, compelled to work 50-70 hours per week, without overtime payment.  The plaintiffs contended, as indicated above, that they had and exercised no managerial authority over their so-called subordinates.

The plaintiffs’ lawyers had valued the case at a startling figure exceeding $50 million.  This verdict is even more significant given the fact that the judge had ruled (prior to trial) that the Company had destroyed a very large chunk of evidence that the plaintiffs’ lawyers asserted hampered their prosecution of the case and benefited the defendants.

The judge evidently agreed with the plaintiffs, as he had rejected defendant’s motion to dismiss the case, finding that the field managers were themselves closely supervised and actually earned less than the people they supervised.  The defendant will not, I daresay, argue with the result, but, on balance, this is against the odds.
 

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Last week, the U.S. Department of Labor (“DOL”) announced that United States Beef Corp., doing business as Arby’s, has agreed to pay back wages in the amount of $55,838 based on their failure to properly calculate overtime.  This agreement came following an investigation by the DOL, which found that 255 Arby’s restaurants had failed to include bonuses paid to managers when computing the “regular rate” of pay for overtime compensation. The settlement affects 759 current and former hourly paid managers in Arkansas, Illinois, Kansas, Missouri, and Oklahoma.

Pursuant to the Fair Labor Standards Act (“FLSA”), overtime for hourly workers “must be compensated at a rate not less than one and one half times the regular rate at which the employee is actually employed.”  The “regular rate” is computed by dividing the total compensation paid to an employee (including all commissions, bonuses and incentive pay) by the hours worked in a given week.  Contrary to an hourly rate, the “regular rate” of pay will vary from week to week depending on the number of hours worked and the monetary amount of any bonus or commission paid to the employee.

The DOL found that Arby’s had computed overtime for the hourly managers using their hourly rate of pay rather than their “regular rate.”  The DOL stated in a press release that “Fast food restaurants are frequently found by the Wage and Hour Division to be in violation of the FLSA’s minimum wage and overtime wage provisions.  Because historical data indicate that the majority of violations are committed by franchisees rather than by corporate-owned establishments, the division is focusing its enforcement efforts accordingly.”

All employers, not just fast food franchisees, need to make sure that they are calculating overtime correctly.  This is especially true for businesses that pay employees lump sum amounts, such as bonuses, pursuant to company policy or practice.  As seen above, even a relatively small deviation from the required computation can lead to significant liability.
 

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 A few months ago, the US Supreme Court issued the landmark decision in ATT Mobility LLC v. Concepcion in which the Court held that the Federal Arbitration Act preempted state law that forces class arbitration on parties that have not consented to it.  The Court ruled that a California rule that found class action waivers on consumer arbitration agreements unconscionable was preempted by the FAA.  Now, a New Jersey federal judge has applied Concepcion to dismiss a FLSA class action and has sent the case to be arbitrated instead.  The case is entitled Opalinski et al. v. Robert Half International Incorporated and was filed in federal court in the District of New Jersey.

District Judge Faith S. Hochberg granted the motion to compel arbitration and dismiss the case, relying on Concepcion and held that its tenets were applicable to FLSA actions.  Judge Hochberg did not accept the plaintiffs’ contention that the defendant had waived its right to go to arbitration, because the Company had waited more than fourteen months before moving to compel arbitration.

Judge Hochberg wrote that “after determining that the arbitration clauses in both Opalinski’s and McCabe’s employment agreements require them to arbitrate their FLSA claim and that [Robert Half] has not waived its right to compel arbitration, this court sees no reason to permit plaintiffs to continue to litigate this action in this forum.”

The Company contended that its ostensible delay in moving to compel arbitration was allowable because the Concepcion case had “dramatically changed the legal landscape” in class actions where arbitration clauses existed and were potentially applicable to a given case.  The Judge held that the motion to compel arbitration satisfied all of the requirements established by the Third Circuit for granting , including finding that the Company had a reasonable basis for the delay, i.e. the issuance of the Concepcion decision, which had changed the law.

I predict this is but the first of many cases that will follow the same pattern.  Also, more employers will be inserting class action waiver language into their arbitration agreements with employees (which are often included in Employee Handbooks) and this tactic may well significantly hamper the ability of plaintiff attorneys to file FLSA class/collective actions.  On the other hand, employers may be unhappy by getting what they “wished for,” because one possible outcome is that the employer may have to arbitrate dozens, if not hundreds, of arbitrations where the facts and law are the same.

To be (surely) continued…
 

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Some months ago, I had posted about the DOL commencing a program by which it was going to make referrals of DOL complaints to private plaintiff attorneys.  I lamented that development, but it appears that is only the beginning.  The DOL has now launched its first smartphone application, a time sheet to help employees independently track the hours they work and determine the wages they are owed.

Available in English and Spanish, users conveniently can track regular work hours, break time, and any overtime hours for one or more employers.  Glossary, contact information, and materials regarding wage-hour laws are easily accessible through links to the Web pages of the Wage and Hour Division.

Additionally, through the application, users will be able to add comments on any information related to their work hours; view a summary of work hours in a daily, weekly, and monthly format; and email the summary of work hours and gross pay as an attachment. Importantly, there is also a “Contact Us” button through which the user (i.e. the employee) can contact the DOL and (perhaps) file a complaint.

The free application is currently compatible with the iPhone and iPod Touch, but the DOL is exploring updates that could enable similar versions for other smartphone platforms, such as Android and BlackBerry, and other pay features not currently provided for, such as tips, commissions, bonuses, deductions, holiday pay, pay for weekends, shift differentials, and pay for regular days of rest.

Employers will need to be increasingly vigilant with their record keeping and wage and hour compliance as now employees are greater empowered to record hours and have immediate access to DOL Wage and Hour laws and provisions.  I am deeply concerned about this development as it indicates that the DOL is actively (some might say, aggressively) facilitating employee complaints to the DOL at the same time giving employees a “simple” means of keeping their own records and using them offensively.  If the employer’s records are not in the best shape, then these employee records, informal and unofficial as they may, will become the “best” evidence of alleged underpayments

I hate technology!
 

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When plaintiffs file a FLSA collective action, they always claim that the employer acted willfully, so the plaintiff (and class) can reap the benefit of an extra year, a third year, on the statute of limitations. One of the defenses to such a claim is that the employer acted in good faith on the recommendation or advice of its counsel in putting into practice the compensation practices at issue.

When an employer, however, does not take the advice of counsel, then (obviously) the good faith defense to willfulness is lost.  That is precisely what happened in a case entitled Mumby v. Pure Energy Services (USA), Inc., which came out of the Tenth Circuit.  The issue concerned whether an employer could legally pay its field service employees a “day rate.”  As the employer did not take the advice, the extra statute year was found warranted.  The defense was denied because, in a strange twist, the employer claimed it could rely upon and then disregard the advice of its lawyers.  Can’t have it both ways, ruled the Tenth Circuit.

The employees, who worked for an oil company, worked twelve-hour shifts, seven days a week, making a total of eighty-four hours for each work week.  As compensation, they received a lump sum for each day, a so-called “day rate.”  Under the plan, the employees received the same compensation, regardless of the hours worked in any week, which were always in excess of forty (entitling them to overtime payment).  The employer also neglected to keep records of the hours worked, whether on a daily or weekly basis. Although overtime hours were worked, the employer did not pay any premium compensation.

In 2005, a new management team took over and a payroll manager became concerned that the compensation practice did not comply with the FLSA.  The Company then sought an attorney’s advice; the payroll manager confirmed that the method of payment was appropriate, as long as the day rate was separated into straight time and overtime rates and the number of hours worked in a day did not exceed twelve.  The Company, however, ignored the advice and continued not to properly pay employees, i.e. by showing the breakdown of hourly rates and also had employees work more than twelve hours in a day.

Under these facts, the Tenth Circuit refused to allow the employer the benefit of the good faith defense.  That was a costly refusal for the employer as, depending on the number of employees involved and the hourly rates at issue, that extra year could produce hundreds of thousands of dollars of additional liability.  The lesson for employers is plain----always check with labor counsel conversant in wage hour law as to the legality of certain compensation practices (e.g. classification issues, computation of overtime) and follow the advice.

It pays off on the front end, by effecting compliance with the law and pays off on the back end (if it gets that far) by avoiding a third year of potential liability in a FLSA collective action.
 

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Two years ago, I made an Offer of Judgment in a collective action FLSA case where the named plaintiff refused the Offer, which then allowed me to make a motion to dismiss for mootness, which was granted by Honorable Susan Wigenton in the District of New Jersey.  Plaintiff’s counsel argued that we were picking off the named plaintiff in an attempt to thwart and diffuse the collective action, where the stakes were geometrically higher.  The Court rejected that contention and granted my FRCP 12(b)(1) motion.

After a very recent Ninth Circuit decision, the result I obtained might not be tenable today.  This is because the Ninth Circuit has affirmed a ruling where the district court refused to dismiss a collective action in the context of a refused Offer of Judgment, holding that the case is not moot as long as the named plaintiff (who had been offered full relief) was still able to file a timely motion for conditional certification.  The case is entitled Pitts v. Terrible Herbst Incorporated.

The plaintiff alleged a failure to pay overtime and couched his case as the garden variety FLSA collective action. In the interim, and before the plaintiff sought conditional class certification, the Company made him an unconditional Offer of Judgment for $900; his computed “actual” damages were only $88.  The Offer also included (as they all should) a statement that “reasonable attorneys fees” would be paid in addition to the dollars offered Pitts.  That Offer completely satisfied Pitts’ individual claim of $88 and when he failed to accept it, the Company moved to dismiss.

The district court, however, denied the motion, ruling that the Offer did not render moot the class action as a certification motion could still have been timely filed.  The Ninth Circuit agreed.  The Court held that allowing this tactic would permit a defendant to kill a perhaps otherwise valid class action by picking off or “buying off” the named plaintiff(s) and thereby escaping from a possibly significantly higher liability.

This is a dangerous ruling for employers. In the case I referenced above, the liability could have been significant.  We knew that and strategized the Offer of Judgment tactic in a legal “atmosphere” where there was a good deal of favorable case law, although at the district court level.  Now, as time passes, the law changes.  Given this holding and another holding from the Fifth Circuit a few years ago, the tactic of using Rule 68 to “pick off” the named plaintiff seems to have fallen into disfavor, forcing employers to litigate on the merits.

More often than not, that is not where we want to be.
 

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There is no job classification or category that is immune to “sponsoring” a FLSA collective action.  A recent case highlights this maxim.  A group of personal trainers and sales counselors who work for 24 Hour Fitness USA, Incorporated have filed two collective actions, charging that they were not paid proper overtime.  One case is entitled Constanza v. 24 Hour Fitness USA, Inc. and the other is docketed as Lee. v. 24 Hour Fitness USA, Inc.  Both were filed in federal court in Florida.

The allegations include not only claims of unpaid overtime, but also, more significantly, allegations that the supervisors were directed to alter and change time records, if the records showed that employees were entitled to overtime.  The plaintiffs claim that the “official” company policy was to not pay overtime and to do what was necessary, i.e. altering records, to accomplish that goal.  This, plaintiffs contend, was in the face of company knowledge that the plaintiffs ordinarily worked more than the maximum of forty hours per week.

The implications here are troubling, if not staggering.  It is a sufficiently damaging violation to not pay overtime properly, but when there is a deliberate corporate policy to control labor budgets by directing managers to alter records, the stakes are raised geometrically.  Not only does this allow plaintiffs to essentially allege they worked an inflated number of hours of overtime, with little or no way to refute such claims, the alleged wrongdoing robs the company of any pretense of any good faith defense and may well expose the Company to significant additional liability.  If the plaintiffs prove there was an intent to deny them overtime, it is hard to say where that could lead.

The first plaintiff, Constanza, seeks to represent a class of fitness managers from any club in the entire United States; these workers give personal training lessons and sell training packages.  The second set of named plaintiffs seek to certify a class of sales counselors who sold health club memberships and who were paid on commission, again, in a nationwide class.

As the classes sought are nationwide and if plaintiffs can establish the commonality of an overall corporate practice to not pay overtime and/or falsify records, this class has the capacity to generate, literally, millions of dollars in exposure and (requested) attorneys fees.  As an exemption defense is likely not possible, the only defense is that the hours claimed as work hours are not, in fact, work hours.  But, with the allegation that records were falsified, I fear for the viability of such a defense.
 

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Just when the New York Mets thought that things couldn’t get any worse for them this season, they get “hit” with a class action lawsuit for allegedly failing to pay Citi Field security guards overtime. The plaintiffs, Errol K. Roberts and David N. Vernod, allege that Citi Field security guards regularly work 40 hours a week, plus 6 hours of overtime for each Mets’ home game, but do not receive time and a half when they work more than 40 hours in a week.

Specifically, the plaintiffs claim that the Mets pay security guards $17.00 per hour and provide them with a flat rate of $102.00 for each home game they work.  However, this flat rate only covers their regular hourly rate and does not factor in premium overtime pay.  The security guards are seeking an injunction, unpaid wages, liquidated damages, and attorneys fees.  The case is entitled Errol K. Roberts, et al. v. Sterling Mets LP and was filed in United States District Court for the Eastern District of New York.

Much like their infield this year, the Mets’ defense appears weak.  Notably, security guards are generally not exempt employees, and the Mets certainly do not appear to treat the Citi Field security guards as exempt.  In particular, the security guards are paid by the hour, not a salary, and they receive a set lump sum when they work extra hours.  The Mets could argue that the lump sum payment for home games represents overtime pay.  However, under the federal regulations, this arrangement is only valid where there is a signed writing between the employee and the employer to this effect. It is not clear whether such a written agreement exists.

Based on the allegations in the Complaint, it is unlikely that the Mets will be able to put up much of a fight in this case.  My advice to the franchise on how to comply with the law under their current pay structure for security guards --- hope for rain.
 

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In recent years, there has been a veritable explosion of class actions in which the theory is that the employer has failed to pay for preliminary or postliminary “working time.”  These can be exceedingly difficult cases to defend because if the workers can establish that the activity is integral to the primary job, the violation is essentially proven and all that remains is to calculate damages. A new case (again) highlights this danger for employers.

A federal judge has granted conditional certification to a class of production workers at the wind tower manufacturing plant of a company; the workers allege that they had to perform certain off-the-clock tasks for which they were not compensated and should have been under the Fair Labor Standards Act.  The case is entitled Etter v. Trinity Structural Towers, Inc. and was filed in federal court in Iowa.

Now, notices will be sent out to the potential class members who have the ability to opt in to the case.  Although the Company has agreed to the conditional certification, it maintains that the employees are in fact not similarly situated and a class action is not appropriate.  With the recent Supreme Court holding that has enhanced the “individuality” defense that I have often preached about, the Company may have a better chance to de-certify the class at a subsequent juncture in the litigation.

The plaintiffs charge that the alleged working time was work performed prior to the start of the shifts, so-called preliminary work time.  The allegation is that the workers had to prepare for their work so they could start their shifts at the correct time, so the preliminary time is so connected to the regular job as to render that time compensable.

The Complaint charges that the Company knew its employees routinely worked more than their scheduled time or ore than 40 hours per work week because its agents and employees directed plaintiffs to arrive at least 15 minutes prior to their scheduled shift start time.”

The element of employer compulsion (if proven) is the most dangerous threat in defending this case.  Once employer compulsion is shown, the alleged work almost always becomes “real” work and then liability follows.
 

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For those of us on the management side, we have been fighting back from a seemingly endless stream of Fair Labor Standards Act class actions, where, in many cases, conditional certification seems to be too easily granted.  The case then proceeds on dangerous ground for the employer, because to fight a case to trial entails tremendous possible exposure, but to settle the case, after conditional certification is granted, will also involve no small sum, particularly as the FLSA is a fee-shifting statute and there is often intense negotiation and debate over legal fees for plaintiffs’ counsel.  Well, as I have been writing about recently, perhaps the tide is turning the other way, just a bit.

I say this because a federal judge has last week dismissed a class action filed against hospitals affiliated with the Caritas Christi network, where the allegation was improper payment of overtime to a class that encompassed more than 12,000 employees.  The court ruled that the plaintiffs failed to adequately state their claims under the FLSA.  The case is entitled Pruell et al. v. Caritas Christi and was filed in federal court for the District of Massachusetts.

The court granted the defendant’s motion to dismiss, concluding that the Complaint did not make out a collective action under the statute.  The judge stated that “it is not sufficient simply to repeat the statutory standard in other language; in other words, to say, ‘I worked over 40 hours and wasn’t paid’ is equivalent to saying. ‘ The statute requires payment for over 40 hours.  I have a claim under the statute.”

The defendants had essentially contended that the allegations were “pressed from a mold” and were “almost entirely hollow recitations of legal elements and provided no information about even the entities for which the named plaintiffs worked, much less the activities that they claimed they were due compensation for.”  The judge agreed and dismissed the class action.

I have seen many cases where the plaintiffs submit canned, cookie-cutter affidavits in their attempts to secure conditional certification.  This case presents a hard lesson for future plaintiffs and is instructive for defense attorneys in that they now have another weapon to defeat a motion for conditional certification.
 

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When the decision in Wal-Mart Stores, Inc. v. Dukes, recently issued, I opined in this Blog that its rationale could be used in defeating and defending FLSA collective actions, although Dukes itself was a discrimination case and not a wage-hour lawsuit.  Other commentators disagreed.  Well, it does not seem to have taken long before the results are in and it seems I was right.

Relying on the Dukes decision, a federal judge has decertified a class of managers employed by Dollar Tree Stores, Inc, who had filed a misclassification collective action, alleging that they were really non-exempt and entitled to overtime pay.  The case is entitled Cruz et al. v. Dollar Tree Stores Incorporated and was filed in federal court in the Northern District of California.

In Cruz, the district court concluded that this major development represented by the Supreme Court decision made it plain to the court that letting the case proceed would entail “unmanageable difficulties” in determining whether particular employees spent the majority of their time performing managerial duties or, put differently, whether management was and remained the workers’ “primary duty.”  The court stated that the “plaintiffs have failed to provide common proof to serve as the ‘glue’ that would allow a class-wide determination of how class members spent their time.”

The judge was very hesitant about permitting the case to remain a class action, as the plaintiffs were going to base their case on a good deal of individual testimony and other proposed proofs of the necessary commonality aspects of the proposed class were deemed lacking.

I have often written about and “preached” the defense of “individuality” when employers are responding to a class action, especially when the issue is misclassification and the proposed class seeks to span several states or the entire country.  I now see, and believe even more, that these kinds of defenses have an enhanced vitality under Dukes that management-side, defense counsel should make the most of in current/upcoming FLSA cases.
 

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In FLSA cases in which retaliation is alleged, it is incumbent upon the employer to defend by showing that the disciplinary process had started prior to the protected activity, meaning that the employer must show that the employee’s engaging in the protected activity could not salvage a job that was legitimately in danger.  If such evidence is not already in existence, then there is the risk that the retaliation complaint will have life breathed back into it, possibly leading to an unpredictable jury trial.  A recent case illustrates this maxim.

In Cantu v. Vitol, filed in federal court in the Southern District of Texas, the employer fired two people.  The employer filed a summary judgment motion and, for one of the workers, it made a sufficient showing that it had already commenced disciplinary actions against the worker and had actually planned to dismiss her well before she instituted legal action against the Company for failure to pay overtime.

So, the district court granted summary judgment as to that employee.  The court, however, did not agree that the employer had presented sufficient evidence i.e. documents/paper trail, showing performance or conduct issues with the second employee, so the motion was denied as to that worker.  The court made specific mention of the fact that there was no proof that the termination decision had been made before the lawsuit was filed.

The employees, a pair of contract administrators for an energy trading company, sought back-due overtime.  The employees had sent notice of their lawsuit to the Company and were then both fired only days after.  Both claimed their discharges were in retaliation for their protected activity.  The Company made a showing that one of the employees had a longstanding dispute with one of the traders; there was also evidence that other traders were unhappy with this employee’s work. Significantly, the Company also demonstrated that it had started to look for a replacement for the employee before the suit was filed.

As to the second worker, the evidence was less convincing and, indeed, rather scanty.  The Company failed to produce any of the e-mail messages that it claimed showed that concerns about the employee’s work performance had been raised prior to her discharge.  Also significant, and making the situation even more problematic for the employer, was the fact that when the employee received a change in responsibilities and increase in workload, she complained about overtime and then she allegedly began to experience different and harsher treatment from Company management, culminating in her firing.
 

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In a recent posting in the MS & K Employment Alert, Steven Schneider and Ivan Perkins wrote about the recent Supreme Court decision in Wal-Mart Stores, Inc. v. Dukes.  In Dukes, the Court de-certified a class of more than one million people.  Although the Court held that the individual plaintiffs were entitled to determination of their damages on an individual basis, rather than by the application of a “formula” to their situations, the narrow majority (5-4) severely restricted the scope of class actions.

The Court essentially rendered the “commonality” requirement in class actions a much more tougher hurdle for plaintiffs to satisfy.  This is particularly true if the plaintiffs proposed class “suffers” from the malady of all workers not being subjected to a uniform, allegedly discriminatory company practice or policy.

The gravamen of the case was that the plaintiffs believed they were discriminated against because of their sex in compensation and opportunities for promotion and advancement.  The plaintiffs’ case was founded on statistical paradigms, such as the fact that women held two-thirds of the hourly jobs, but only one-third of supervisor/management jobs.  Both lower courts found that certification of the class was proper, a class defined as “[a]ll women employed at any Wal-Mart domestic retail store at any time since December 26 1998.”

The majority held that Federal Rule of Civil Procedure 23(a), i.e. that “questions of law or fact common to the class,” was the so-called commonality requirement and then the majority ruled that commonality did not exist because the plaintiffs were unable to show that there was a general, overall “common” policy related to the discriminatory allegations raised.  In this regard, the best proof offered by the plaintiffs was a sociologist who proved he did not have any real idea how widespread the “discrimination” was.

The authors do not believe that a Dukes defense would be viable in a FLSA action, as such class actions take issue with specific company policies, such as methods for classification of employees or determining if so-called off-the-clock work is compensable, as opposed to making vague contentions that a particular manner of “thinking” exists within the managerial hierarchy. They believe that plaintiffs will be easier able to show a common policy applicable to wage hour issues than to show common thinking and/or a policy related to discrimination.

I understand their point of view, but I believe there might be a use for Dukes in FLSA/state law class action defenses, especially if there is no written policy and the plaintiffs are trying to make their case by showing or establishing a practice.
 

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Amanda Haverstick just penned something in a recent edition of Employment Law 360 concerning the use by employers in FLSA collective actions of demanding an early trial plan from plaintiffs’ counsel.  She writes that by requiring counsel to submit a plan at an early stage in the proceedings, the court can review it and (hopefully) conclude that the proposal for proceeding on a class basis is insufficient, which would then impel the court to decertify the class or deny class certification.

The recent case of Espenscheid v. DirectSat USA LLC, 2011 WL 2009967 (W.D. Wis. May 23, 2011), is illustrative of this newly emerging phenomenon.  Although the trial court initially certified the classes, just before the trial was to begin, the court changed its position and de-certified the classes.  This followed the court’s examination of the plaintiffs’ trial plan.

Scrutiny of the trial plan convinced the court that the case would not be manageable.  The court believed that the rights of absent class members and, importantly, the employer, would not be protected.  This is because the plan outlined that approximately forty plaintiffs would give so-called “representative testimony” which would, in theory, be representative for 2300 class members.  The plan then outlined that damages could be determined by calculating another representative (i.e. average) number of overtime hours for the forty representative plaintiffs and then extrapolating that average to the balance of the class members.

The court deemed this to be unacceptable and held that, notwithstanding the commonality and uniformity evidenced in the complained-of practices, which warranted an initial class certification, the case could not proceed as a class action.  In other words, the court determined that proving the claims of the plaintiffs would be contingent upon individual scrutiny of how they conducted themselves under the uniform policies.

I have written many times that the best defense of the employer in collective and class actions is to argue that individual issues dominate and that individual scrutiny is needed.  This presents a variation on that theme.  By requiring the plaintiffs to present a trial plan, the details of that plan may evidence or be argued to evidence a need for individual scrutiny and then the class will fall.  This should be done, as Amanda writes, as early in the case as possible to cut the case (and the attorneys fees) off at the pass.
 

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Just the other day, I posted about an off-the-clock class action that involved field technicians.  In this off-the-clock FLSA collective action, bus drivers claimed that they were not compensated for time that spent driving routes to become familiar with those routes.  They must have had a case because a federal judge has now approved a settlement between the Chicago Transit Authority (“CTA”) and the class of bus operators in which these plaintiffs will realize some recovery.  The case is entitled Reyes v. Chicago Transit Authority and had been filed in federal court in the Northern District of Illinois.

The settlement will compel the CTA to pay out up to $300,000 to resolve the plaintiffs’ claims. The CTA will also pay $350,000 in attorneys fees.  The entire issue involved claims of worked, but unpaid for, time. It appears that the drivers engaged in a practice labeled “cushioning,” which entails their driving various routes that they shifted over to, so they could learn the routes. Therefore, the service would run efficiently and not be impacted.  There were approximately 1100 current/ former bus operators who opted in to join the lawsuit (which was filed in February 2010.)

The Complaint charged that the CTA shut down a garage as part of a restructuring plan to deal with a budget crisis.  Some employees were laid off, others were transferred to different garages which meant that routes had to be changed.  The plaintiffs allege that the drivers who selected a new garage were ordered to learn (i.e. drive) every route operating from that garage and the drivers staying in their existing garage were mandated to train (i.e. drive) any routes transferred to that garage.

Not only were the drivers required to drive the new routes, the Complaint alleges they were supposed to do it outside of their regular shift and working hours.  The plaintiffs allege that the CTA stated that it would not pay any compensation for this extra driving work

Employers must be very wary of such off-the-clock work.  As I have often stated, if there is any element of employer compulsion in the activity, then the employees feel they must comply with the directive, even though they are not paid, or else they will (possibly) lose their jobs.  If the “work” at issue or being directed is at all related to the primary job (as this work obviously was) a court or an agency will certainly find this time to be compensable.  If the work is preliminary or postliminary and directly tied to performance of the main job, it will be compensable.

There is an explosion of such cases in recent years and I expect more.  Careful monitoring of workplace rules and practices is essential.  If an activity is found to be “work,” it is better to deal with that issue sooner rather than later, such as when standing in front of a federal judge (or jury). .
 

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On May 9, 2011, a group of Yankee Stadium food service workers filed a complaint in the Southern District of New York alleging that the stadium’s concession providers withheld tips in violation of the New York Labor Law (“NY Labor Law”). The workers allege that the concession providers at the new and old Yankee stadiums kept the 20% service charge added to the cost of food and drinks served to certain field level fans. The workers claim that the menu for the field level seats states, “A 20% service charge will be added to the listed prices. Additional gratuity is at your discretion.” The case is entitled Ryan et al. v. Legends Hospitality, LLC, and the proposed class allegedly consists of one hundred members.

The case is notable in that it highlights an increasingly rare phenomena - - a divergence between state and federal wage and hour law. Under the federal law, the Fair Labor Standards Act, a compulsory service charge does not constitute a tip, but rather is counted toward the employer’s gross receipts. In contrast, the NY Labor Law, provides that an employer cannot “retain any part of a gratuity or any charge purported to be a gratuity for an employee.”

The New York Court of Appeals has previously interpreted this language to require that an employer is prohibited from withholding a mandatory service charge or fee if a “reasonable patron” would have believed the service charge to be gratuity. Accordingly, the employers in Ryan et al. v. Legends Hospitality, LLC appear to have a difficult road ahead of them since the menu states, as alleged by plaintiffs, that “additional gratuity is at your discretion.”

The lesson here is that employers need to be mindful of state, as well as federal, wage and hour law. While state and federal law is typically consistent, a difference such as discussed in Ryan et al. v. Legends Hospitality, LLC, can lead to significant problems.
 

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A group of asset protection coordinators had filed a class action against Wal-Mart Stores Incorporated, claiming they had been misclassified as exempt employees under the Fair Labor Standards Act; the plaintiffs sought a nationwide class.  They sought conditional certification of their class under the “modest factual showing” standard, which is, oftentimes, a very lenient standard for plaintiffs to initially prevail upon.  The case is entitled Bramble v. Wal-Mart Stores Inc. and was brought in federal court in the Eastern District of Pennsylvania.

In denying the motion, the judge referenced the deposition testimony of the plaintiffs, where they tried to cast the theory that they spent most of their time performing non-exempt work.  The court was unimpressed, as it found that this testimony was “largely specific to their own experiences at Wal-Mart.”  As such, the testimony could not support the contention that their work was the same as was performed by allegedly similarly situated employees across the country.

Moreover, the court ruled that the misclassification issue would necessarily have to center around a fact-intensive analysis of the duties and functions discharged by these employees all over the nation.  In other words, the need for individual scrutiny outweighed (significantly) any evidence that there existed a common policy or a common set of job duties for these employees, wherever they might be situate.  As the number of potential opt-ins totaled more than five thousand, spread out over more than three thousand stores, the court concluded that individual analysis would be needed and this would not allow for the “the economy of scale envisioned by the FLSA collective action procedure.”

The workers had claimed that they had the same position descriptions and that Wal-Mart evaluated and compensated them under a common set of policies.  The Company, however, countered by producing affidavits from twenty-three employees, in three States, that demonstrated that the employees performed a number of managerial functions, including hiring, firing, and training.

I have noted in other postings that the need for individual scrutiny is a solid and winnable defense against even the conditional motion for class certification, which plaintiffs often just support with almost identical affidavits or, as herein, boilerplate testimony about their performance of allegedly non-exempt duties.  A carefully mounted defense, which highlights the individual differences in supposedly similarly situated employees, especially if, as here, those employees are widely scattered can defeat class certification and deter the plaintiff’s lawyers from trying the same thing with a different grouping of employees.
 

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I recently gave a presentation at a national wage-hour conference in Miami on the perils of automatic deductions for lunch and the possibility that such a procedure could lead to class actions, with the allegation that the employee(s) worked through lunch but nevertheless suffered an automatic deductions.  I have also found that many hospitals and health care employers are utilizing this procedure.  Well, it’s happening.

In a federal lawsuit, a judge has granted class certification to a class of employees who allege that meal breaks were deducted from their pay, although they did not eat lunch or were otherwise relieved from duty.  The case is entitled Hamelin v. Faxton-St. Lukes Healthcare and was filed in the federal court in the Northern District of New York.

The plaintiffs claim that a half-hour was deducted from their working time every day for lunch, but patient care demands often necessitated that they miss the lunch break and instead performed productive work.  The employees at issue are Nurses and Certified Nursing Assistants, i.e. those employees with direct patient care responsibilities.

In an interesting procedural twist, the defendant contended that the court should not exercise supplemental jurisdiction over the claims of the plaintiffs under New York law, with the theory being that when plaintiffs must opt in for one statute (FLSA) and opt out of the other (the state claims), confusion will result.  Concomitant to the “confusion” argument, and, to my view, more crucial is that argument that allowing the state claims to proceed deviated from the congressional intent to allow FLSA plaintiffs to opt-in; there was a danger that the state claims and claimants could “overwhelm” the federal claims, according to the defendants.  The judge disagreed, finding precedential support from the Second, Seventh, Ninth and District of Columbia circuits.

I think allowing the claims to proceed together is wrong and represents a contradiction in how these cases fundamentally proceed.  On the merits, it is essential for employers utilizing automatic deduction policies to implement some fail-safe mechanism that allows employees who claim they have worked through lunch to document that, with follow-up by management and, if appropriate, payment to the employee.

 

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On March 17, 2011, a Michigan jury returned a verdict in favor of loan company, Quicken Loans Inc., in a class action lawsuit alleging that Quicken had failed to pay them overtime under the Fair Labor Standards Act (“FLSA”).  The jury found that the loan officers had been properly classified as exempt employees under the FLSA’s administrative exemption.  The case is entitled Henry v. Quicken Loans Inc. and is in the Eastern District of Michigan.

This verdict is significant as it is the first ruling by the courts on the applicability of the administrative exemption to loan officers. Even more noteworthy is that the jury disregarded the recent “administrative interpretation” issued by the United States Department of Labor (“DOL”) that provided, going forward, that loan officers would be treated as non-exempt employees.  In spite of this guidance, the jury decided that the administrative exemption applied.

The DOL’s March 20, 2010 “administrative interpretation” reasoned that contrary to the requirements of the administrative exemption, the typical mortgage loan officer’s primary duty is not “the performance of office or non-manual work related to the management or general business operations of the employer or employer’s customers.”  Rather, mortgage loan officers are responsible for selling loan products produced by the company, but their duties do not relate to servicing the business itself.

In contrast to the reasoning of the DOL, the jury in Henry v. Quicken Loans Inc., ruled that the individuals constituted administrative employees in that they were engaged in “sophisticated financial analysis” and exercised discretion and independent judgment regarding business related matters.

As I stated in an earlier entry, there have been numerous overtime suits filed by mortgage loan officers and underwriters within the past year.  Henry v. Quicken Loans Inc. may provide loan companies with a defense to such lawsuits. This is great news for the financial services industry.

To be continued…
 

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An hourly paid employee has sued Helzberg's Diamond Shops Inc. in a Fair Labor Standards Act class action alleging that the jewelry store failed to pay proper overtime. The employee alleges on behalf of himself and others similarly situated that the employer did not pay for time worked during lunch breaks, for which the employees were required to punch out and then punch back in. The case is entitled Clark v. Helzberg's Diamond Shops Inc. and was filed in federal court in the Middle District of Florida.

The named plaintiff, Clark, worked as a sales associate as well as an Assistant Manager at a Jacksonville, Florida store but he seeks to represent all employees deemed to be similarly situated not only in Florida but throughout the United States. The Complaint seeks to go back three years, based on the allegation (made in all FLSA actions) that the violations were “willful.”
The company operates more than two hundred retail stores in all fifty States, so the possible liability is enormous (as well as the costs of defending the lawsuit.).

The Complaint also seeks liquidated damages, which is a doubling of the damages that are assessed as back-due wages. Naturally, the Complaint also seeks attorneys fees, which could be enormous, especially the longer that the case proceeds and the more discovery engaged in (e.g. depositions taken possibly in many states.)

These working time class actions, especially those alleging work done notwithstanding that the employee(s) had punched out, are extremely dangerous and extremely hard to defend because it will be difficult to prove or even remember whether employees in Florida or anywhere else actually worked through their lunch periods, especially when the evidence suggests that they did not, i.e. punch out/punch in.

This need for individual assessment and scrutiny, however, may be the Company’s salvation in defending the case, as I have often written. Where individual assessment is necessary, particularly in the absence of a companywide policy or practice showing that such work time was required, a class action will fail because of that need for particularized study of many (i.e. thousands) of employees scattered throughout the nation.

Another tactic—make an Offer of Judgment for the named plaintiff, early on in the case. That would moot the case if it accepted and if it is not, the Company can move to dismiss under the Federal Rules This advice is coupled with an even more stringent admonition—if you are doing something wrong, fix it, so the plaintiff’s lawyers cannot simply substitute in another named plaintiff when they accept the Offer.

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Earlier this month, the United States Department of Labor (“DOL”) announced that it had recovered $1 million in unpaid overtime from federal defense contractors in California. This award was based, in part, on the DOL’s finding that the contractors violated the record keeping requirements set forth in the Fair Labor Standards Act (“FLSA”). In particular, the DOL found that the contractors had failed to maintain proper time and payroll records for its workers.

This determination highlights the need for employers to comply with federal and state record keeping requirements. The FLSA, as well as most state wage and hour laws, requires that employers keep certain time and payroll records for non-exempt employees. The DOL has provided that an employer must maintain the following records:

(1) Employee’s full name and social security number.
(2) Address.
(3) Birth date, if younger than 19.
(4) Sex and occupation.
(5) Time and day of week when employee’s workweek begins.
(6) Hours worked each day.
(7) Total hours worked each workweek.
(8) Whether the employee is paid on an hourly, salary, or fee basis.
(9) Regular hourly pay rate.
(10) Total daily or weekly straight-time earnings.
(11) Total overtime earnings for the workweek.
(12) All additions to or deductions form the employee’s wages.
(13) Total wages paid each pay period.
(14) Date of payment and pay period covered by the payment.

Notably, the DOL further provides that for a period of three (3) years, an employer must preserve payroll records and collective bargaining agreements. Similarly, records on which wage computations are based, time cards, wage rate tables, records of additions to or deductions from wages, and work and time schedules need to be retained for two (2) years.

The DOL, however, has only provided the minimum requirements for complying with the law, but not necessarily the best practices for an employer to protect itself. First, these record keeping requirements are directed at non-exempt employees. As we have seen over the past several years, misclassification of exempt employees is a hotly litigated issue. The failure by an employer to maintain complete records for exempt employees puts it at a distinct disadvantage in defending such lawsuits. Accordingly, to the extent possible, employers should also maintain the records discussed above for exempt employees. Second, even though the DOL only requires employers to keep time records for two years, employers can be liable for damages under the FLSA for up to three years before the filing of a lawsuit.

Thus, employers can best protect themselves with respect to potential wage and hour lawsuits by implementing a policy of preserving payroll and time records for all employees for at least three years.
 

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In a recent lawsuit, a group of truck drivers filed a FLSA collective action against their employer, which was a leasing company and the trucking company to which they were leased.  The drivers did not have assigned routes, but their routes changed on a daily basis, depending on a number of factors, such as customer requirements and the driver’s need to stay with DOT driving hours guidelines. The drivers claimed overtime and the Company defended on the grounds that the workers were exempt under the FLSA motor carrier exemption.  The case is entitled Songer v Dillon Resources, Inc. and was decided in the Fifth Circuit Court of Appeals.

The federal district court had ruled that because the men could be asked to drive interstate on any given day, all of the drivers were in interstate commerce and therefore the motor carrier exemption applied.  For that exemption to apply, the company must be recognized as a motor carrier under DOT law, the employees involved must affect safety (as drivers do) and the employees must be involved in interstate commerce.   Under the motor carrier regulations, if the drivers are in a “pool” by which on any day, any one of them can be required to drive out of state, all of the workers are deemed to be in interstate commerce.

The wrinkle here was that the men worked for the staffing company, which sent them to the actual trucking company so their claim was that they were one step removed from the company that actually conducted the interstate work.  The Fifth Circuit rejected that contention and found that the staffing company was a “joint employer” with the trucking company because it hired and trained the drivers and was responsible for their payroll, while the trucking company (the co-employer) controlled the day-to-day activities of the drivers.  Thus, the staffing company reaped the benefit enjoyed by the interstate trucking company and was found to be within the scope and protection of the motor carrier exemption.

This case is fascinating because in these unique circumstances, it benefited the leasing company to be found to be a joint employer with the other entity.  That relationship gave it the protection of the exemption.  It just goes to show that one size does not fit all when defending a FLSA collective action and the advocate must always be on the lookout for a strategy/defense that will find a safe harbor (e.g. exemption) defense.  The other lesson here is to be cognizant that state law may differ from federal law, as it does in New Jersey on the motor carrier exemption, so that contingency must be provided for as well.
 

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In a recent posting in the Wage Hour Defense Blog, Michael Kun and Doug Weiner comment on a recent DOL initiative to actually refer potential wage hour law suits to private attorneys.  This, the authors note, comes on top of the DOL announcing that it will be hiring 350 new investigators to step up the government's enforcement initiatives.

The DOL calls this program the "Bridge to Justice."   Under the program, plaintiff lawyers can sign up for referrals and the agency will make such referrals.   I assume they will have to possess some expertise in the area, although it would benefit employers if they did not.  It is amazing to me that a government agency, which is supposed to be a neutral, call-it-as-you-see-it, down-the-middle institution, would actively facilitate employees suing their employers for (most likely) overtime monies alleged to be due.

There will be many lawyers who will sign up for the program, attracted by the fee-shifting nature of the FLSA.  What will also be attractive is the belief (misplaced as it may be) that employers do not have an understanding of the wage-hour laws, especially on exemption classification matters, which form the basis of many of these suits.

This new development only reinforces what I have been preaching about for years--the need for a self-audit, self-analysis process by which all salaried classifications are examined for possible classification problems, as well as work time issues (e.g. preliminary and postliminary activities).  This development does not bode well for employers and signals another wave of  FLSA collective actions in 2011.  The best defense, the only defense, really, is a proactive scrutinizing of compensation practices and  fixing what is broke, in a "soft" subtle manner so as to not arouse "suspicion" and trigger calls to this new network of plaintiff lawyers.  

Happy New Year! (I think).

    

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A group of satellite television dish technicians suing for overtime under the Fair Labor Standards Act ("FLSA") have been denied class certification based on the court’s finding that there was not sufficient commonality among the class members, or, put differently, there was too much of a need for individual scrutiny.   The case is entitled Shim v. Echosphere, LLC and was filed in the Southern District of Florida.

This is an important decision because, although the judge agreed that the putative class members had similar job descriptions and they were covered by the same corporate policies as the lead plaintiff, there existed enough “significant individual considerations” such as to negate the identity of the proposed class.

 

The lead plaintiff was a technician and, as such, he was clearly non-exempt and entitled to overtime. In addition to overtime monies, the lead plaintiff alleged that the company made routine/automatic deductions for lunch periods, whether or not the lunch periods were taken.

The judge also found, as another basis for denying the certification motion that the technicians at issue were employed at a number of locations throughout the country and thus the court would be compelled to analyze varied employment standards in the different jurisdictions.  The court stated that, in order to grant the conditional class certification it “would have to analyze the work experience and employment policies of each individual at each location across the nation.”

 

The judge also determined that since so many time periods were involved, the damage claims would be all over the board.  The differences between the different workers would also mean that some would be entitled to liquidated damages and others would not, another lack of the required commonality. The Court also stated that it was “wholly unclear whether the opt-in plaintiffs were subjected to the same lunch-break policies and practices, whether these policies and practices were established in the same manner by the same decision maker, and whether the FLSA violations allegedly experienced by the opt-in plaintiffs were sufficiently similar.”

 

This is the key to an employer’s successfully defending a class action.  Dig into the facts and find as many distinguishing factors amongst the putative class members and bang away at those in the opposition to the motion for conditional certification.  The greater need for individual scrutiny the better the chances of defeating the class motion.

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In the November 30, 2010 issue of Employment Law 360, Alfred Robinson posits three continuing trends in FLSA litigation: 1) donning and doffing cases; 2) exemption misclassification cases; and, 3) off-the-clock work cases.  I concur, with the addition of a group of cases that I will call “blackberry cases” or “checking e-mail” cases.

The issue of donning and doffing concerns clothing and protective gear.  It raises the more global issue, however, which is when are preliminary and postliminary activities sufficiently related to and integral to the main job that the time spent doing them becomes (somehow) compensable.
Mr. Robinson identifies three factors that go into the calculus of whether the time is compensable, but two of them—compulsion by the employer and benefit (if any) to the employer are within the employer’s control.  The third is whether the activity is connected. I go a step further—if the activity is somehow mandated by an outside government agency or other governing body, then the activity will likely be deemed compensable.

The next category are misclassification cases.  He points to the fact that the US DOL has stopped issuing Opinion Letters and now will only be issuing so-called Interpretations.  Interestingly, the first of these involved whether Mortgage Loan Officers fit within the administrative exemption.  I predict that more class actions will target classes of employees deemed administrative.  Of the three white collar exemptions, the toughest one to defend is the administrative exemption.

The last category are “off-the-clock” cases, which means employees allegedly working through lunch and not being paid, especially where the employer has an automatic deduction policy. These cases also include instances where employees claim they started/reported early or stayed late and were never paid.  Again, with the use of smart clocks, which may automatically punch people in and out at their assigned shift times, the employer may have a tough time proving that employees did not report early, did not start work early, but were prevented from punching in to reflect that work was performed because the smart clock would not allow it.  These are dangerous cases.

The blackberry and email cases are going to become a real nightmare, I believe.  Everybody does it, even when they are off work at night and on the weekends.  The pressures of business, of employment in these complicated times and the unceasing desire to show our employers that we dedicated and diligent contribute to this perpetual “need” to check e-mail.  If employers do not have policies addressing such usage, i.e. prohibiting it, I believe a rash of class actions involving claims by dozens/hundreds of workers that their checking of e-mail pre/post work is compensable time is headed for the employer world like a rocketing comment.  That is the specter before us and I fear it will raise its head in the coming year(s).
 

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A North Carolina-based employee has filed a FLSA collective action and a state law class action alleging, among other things, breach of contract, against Foot Locker Incorporated.  The Complaint alleges that the Company essentially deprived sales associates, cashiers and stockers from properly due wages and overtime through a systemwide policy and practice of managers altering and changing time records.  The case is entitled Kennedy v. Foot Locker Inc., and was filed in the Western District of North Carolina.

As evidence of the necessary commonality, the plaintiffs allege that the employment terms are found in the employees’ written employment offers, the Employee Handbooks disseminated by the Company, its corporate policies as well as other documents.  The gravamen of the plaintiffs’ theory is that they were ostensibly required to log work hours into the computer system, but they allege they were prevented from doing so, whether by accident or otherwise.

The Complaint’s most serious allegation is that “managers ... with the knowledge and/or complicity of the company, regularly altered the computerized records .... to reflect a lower number of hours worked by the retail employees.”  This was done because managers are under constant pressure to meet labor costs budgets and if they manipulated the time records to show that no overtime was worked and/or fewer hours were worked, they would be within budgetary constraints.

There may be hundreds of employees, current and former, involved in this matter.  In a similar case, in which a class was certified in September 2009, approximately 5,200 current or former Foot Locker workers have opted into the action.

The Company’s best defense is to show that this was not a widespread or systemic practice, but, at worst, involved but a few “rogue” managers.  The case does highlight, however, the increasing pressure on managers in every industry, but particularly in chain store/franchise situations to stay within imposed labor budgets and what some managers will resort to in order to accomplish that often difficult chore.
 

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A federal judge has conditionally certified a FLSA collective action which was instituted by a production workers in an action in which the plaintiffs claim that many kinds of payments were not included when the company calculated their overtime.  There were lump sum payments, flexibility payments for working during certain operational contingencies, various night work premiums, holiday premium pay and annual payments for certain employees when they renewed their licenses.

Production bonuses or other promised payments must be factored in when paying overtime to non-exempt employees.  Unless a bonus or other kind of payment is not dependent on the occurrence of a particular event (e.g. attaining ten years of service/longevity) and is given completely at the whim of the employer, these payments increase the regular rate.  They must be allocated over the period of time (week, quarter, annual) that in which the bonus has been earned and then overtime paid accordingly.

When the payments are promised to employees in company policies or documents, the Fair Labor Standards Act is even clearer and more emphatic that they be included in the calculation of the regular rate.

Although these calculations add in very little to labor costs on a week-to-week basis, if they are not undertaken, then the potential liability should a lawsuit ensue may conceivably escalate quickly.  This is because it is likely that many employees are subject to the same policy and these smallish weekly amounts, when multiplied by (perhaps) several hundred employees over two or three years (the possible statute of limitations in a FLSA action) become an amount that may be daunting.
 

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A federal judge has conditionally certified a class action which was instituted by a group of production line workers in a turkey processing plant.  They claim they are owed compensation for donning and duffing activities as well as other activities that they claim were “working time.”  They claim compensation for changing into protective gear (the donning and doffing component) washing their tools and time spent in travel to and waiting at their production lines.  The case is entitled McLaurin v. Prestage Foods Inc and was filed in the District of North Carolina.

The plaintiffs claim that the Company paid them only for time that the production lines were supposed to be operating.  The plaintiffs estimate 300-1000 members in the class and wanted individuals who worked “on or near” the processing line to be part of the class.  The Company is contending that the class definition proposed was too broad because employees working “near” the line were paid differently than those who actually worked on the line.

Naturally, the plaintiffs wanted the broader definition to apply, contending that the true parameters could be worked out “later.”  The defendants also contended that there were factual differences in the kinds of protective gear worn by the workers, which hearkens to the individual scrutiny defense, but the judge rejected this contention.  The court held that if there was a common policy or practice that applied to all of the workers, the fact that there might be individual differences from worker to worker would not detract from the validity of the class.

There will be probably considerably more discover in this matter.  The case will likely be settled sometime in the future, as these working time cases are different than and harder to win than an exemption misclassification issues.  In the exemption case, if the employer has strategized correctly and preemptively and is proved correct on the exemption question, the entire class evaporates in a flash.  With working time cases, where there lies any modicum of employer compulsion or compulsion by an outside government agency that operates through the employer (e.g. FDA, Health Department) then there likely will be recovery by the plaintiffs and attorneys fees for their counsel.
 

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A federal judge has conditionally certified a class action which was instituted by a “class” of strippers who allege that the Penthouse Executive Club, a hot spot of entertainment in Manhattan, did not pay them at least the minimum wage and failed to pay overtime. There are also allegations of illegal diversions and deductions of and from their tips.  The case is entitled In re: Penthouse Executive Club Compensation Litigation, filed in the federal court in the Southern District of New York.

As I have often written, the (probably) best defense to an attempt to certify a class is to argue that individual assessment is necessary, thus defeating the commonality requirement.  The defendant argued that in this case but the Court disagreed.  The Court found sufficient commonality or similarity between the wage hour practices as applied to the strippers to warrant certification.  As the Judge aptly stated, “this argument borders on specious - members of the proposed class all hold the same job title, have the same job responsibilities, work at the same location and, by extension, are subject to the same ownership and management.”

There are seven so-called exotic dancers who have opted into the lawsuit; there were three lead, original plaintiffs.  These actions date back more than a year, when Leslie Liwanag filed a collective action against the Penthouse Executive Club.  Two more suits of similar nature were filed and the cases have been consolidated.

The lawsuits are virtually identical.  They charge that the employer did not pay minimum wage, charged an allegedly illegal “house fee” and failed to reimburse the dancers for their uniforms, which would be a violation of New York State law.

Tip violations have also been alleged.  The Club supposedly requested that customers tip the dancers in vouchers labeled as “Executive Money,” which were sold by the Club to customers.  The Club then allegedly assessed a 20% service fee, which denied the strippers their full tips.

The Club has defended by also asserting that the dancers were not employees, but rather independent contractors, as they were in charge of their own performances, supplied their own garb and could work for other clubs.  This is a dubious defense, absent proof that the dancers did in fact work elsewhere.
 

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Although Blackwater, the “infamous” company that has played a role in the occupation of Iraq, has changed its name to Xe Services LLC, that cannot change the seemingly continuing stream of Fair Labor Standards Act collective actions raining down on the company.  In the latest such action, a group of employees are asserting that they were misclassified as exempt and therefore improperly denied overtime pay.  These employees are firearms and tactics instructors and the case is entitled Falla et al. v. Xe Services LLC, filed in the U.S. District Court for the Eastern District of North Carolina.

The employees also assert that Blackwater misled them into believing that they were not entitled to any overtime pay.  The workers nevertheless complained about not receiving overtime, but that did not matter.  The Complaint alleges that the Company employed 30 instructors and they were directed to report “8 hours” worked, regardless of the number of hours actually worked.  If that were proven to be true, that could be problematic for the Company.

The Complaint sets forth that “WPPS and Navy program instructors, including plaintiffs, were nonexempt employees, eligible for overtime compensation, under the FLSA.”  Complicating matters is the fact that Blackwater failed to keep proper records of hours worked, including any additional hours claimed.  The Complaint focuses on this alleged deficiency. “ As a result, the instructors' time records, to the extent they exist, fail to document all of the instructors' compensable time.”

The instructors provided military training for police and armed forces at a number of camps throughout the United States.

If the Company paid these men on a salaried basis, there is a chance that the administrative exemption might apply to them.  There are US Department of Labor Opinion Letters standing for that proposition; I think the professional exemption would be a reach.  If the men were paid hourly, then they were non-exempt because they were not paid on a salaried basis, no matter how unique or important their job duties.
 

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When piece-rate workers work more than forty hours, the Fair Labor Standards Act has developed a formula for determining and computing their overtime pay.  It is first essential, however, to realize that such workers are due overtime and to understand that workers who work “with their hands” such as mechanics or technicians, are entitled to overtime.

The failure to comprehend these truisms has been demonstrated in a class action involving satellite television technicians, where a federal judge has just confirmed a $2.33 million settlement in an overtime collective action for such employees in Wisconsin and Michigan.  The case is entitled Wilcox v. Alternative Entertainment, Inc. and was filed in the Western District of Wisconsin.

The satellite installers claimed overtime and also alleged that their wages suffered improper deductions  The workers claimed that they were paid per installation, which is a piece rate, but when they worked in excess of forty hours, they received no additional compensation.  Thus, their theory is not only were they not paid overtime, but there were weeks when they worked so many hours in that particular week that their hourly rate did not even meet the federal minimum wage standard.

To add supposed insult to alleged injury, the workers also charge that the Company improperly deducted monies for poor workmanship, lost/stolen property or damage to the property of the homeowner where the satellite dish was being installed.  Not only was there no written authorization to do so, but the law in many States is clear that such deductions are illegal (although the employer may take disciplinary action against the offending employee).

There are approximately 900 employees who might be involved in the class.  Given that figure, the potential liability is/was geometrical, as the settlement shows.  Significantly, the judge awarded an attorneys' fees award of $776,666.  This is the other big danger in FLSA class actions—the law is a fee shifting statute, meaning that the employer must pay the plaintiffs’ attorney fees, which (as here) is often a large sum.

There has been a sharp rise in lawsuits in the cable and satellite industries.  The lesson to learn is that technicians or installers or similarly titled employees are non-exempt and if they work in excess of forty hours, they are owed overtime, regardless of the mode of their compensation (e.g. piece-rate, hourly, commission).

 

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In a recent post in the Wage and Hour Defense Blog, Richard Tuschman discussed the Eleventh Circuit decision in Abel v. Southern Shuttle Services, Incorporated, which analyzed the applicability of the FLSA motor carrier exemption to drivers who transport passengers from airports to locations within the same State.  This exemption from overtime typically applies to truck and bus drivers who drive in interstate commerce.  When drivers do not drive interstate, they may nevertheless be found to be in interstate commerce if their part of the transportation is part of the “practical continuity” of the interstate trip.  This posting can be found at  www.wagehourblog.com/2010/10/articles/motor-carrier-exemption/intrastate-passenger-trips-can-trigger-flsas-motor-carrier-exemption-rules-eleventh-circuit/index.html

I handled a case where bus drivers never left New Jersey but because a passenger could buy a ticket and use the ticket for local and then interstate transportation, so-called “through-ticketing,” the drivers were deemed in interstate commerce.  That single-ticket arrangement evidenced the practical continuity required to show interstate commerce was involved.  Similarly, in this case, the Court held that the shuttle drivers were continuing the interstate journeys of the passengers who were disembarking at three South Florida airports and then were being taken by the drivers (Mr. Abel included) to their hotels, offices and other locations.  These connecting arrangements were made via the Internet; Southern Shuttle had contractual arrangements with these Internet travel companies to provide this transportation.

This contractual arrangement provided the practical continuity for the interstate trip.  Where a purely intra-state trip is the start or end of an otherwise interstate trip, the continuity exists.  To be sure, as Richard points out, someone simply hailing a roving taxi at the airport and being taken to a hotel does not place that taxi driver in interstate commerce as there was an absence of a prior contractual arrangement.

This development as well as the entire doctrine of practical continuity is of special interest to trucking and bus companies.  Many drivers who work for such companies work long hours, making possible overtime claims, whether individual or collective/class, of considerable danger. Establishing that an intrastate trip is part of an interstate trip is a magic bullet out of such a dilemma.
 

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 When can the Department of Labor or plaintiff lawyers go after the officers and owners of a company for unpaid wages due employees?  That is an extraordinarily important question because all individuals who go into business, especially those who incorporate, are doing so to gain legal protections and to avoid, if things go “south,” being found liable for debts of the corporation.

In a recent case, a federal court has held that the CEO and COO of a trucking company in dire financial straits did not exercise operational control over the terms and conditions of employment of the plaintiffs as to be deemed “employers” under the Fair Labor Standards Act and thus personally liable for FLSA violations.  The case is entitled Solis v. Velocity Express, Inc. and was filed in the Western District of Oregon.  The Secretary of Labor claimed that since each of the officers possessed a significant financial interest in the company, as well as exercising financial control and supervisory authority over the individuals who actually handled the daily operations, these individuals should be “employers.”

The US DOL had taken the position that the Portland-based delivery drivers were improperly denied overtime wages tried to impose personal liability, in a broad-stroke action.  The federal judge disagreed with this approach, finding that, under the government’s theory, almost any corporate officer could be considered an “employer” under the FLSA.  This would transgress against the Congressional intent, which was that supervisory/management employees would not be held personally liable for unpaid employee wages.

The court focused on the “economic realities” test, which mandates control be directly exercised over the working conditions of the employees, such as keeping their time records and directing compensation decisions.  Under that rationale, there was no personal liability Here, the facts showed that the CEO really had a very minor financial interest, i.e. 0.85 percent of the stock; the COO owned only 0.18 percent.

The court noted that there must be a direct relationship between the officer’s decision and the FLSA violation. Herein, major operational decisions were made at a number of hierarchical levels of the company.  There was, tellingly, no evidence that either of these officers were involved in those decisions.  Therefore, the court concluded that the “supervisory relationship between these corporate officers and the delivery workers is too attenuated to support personal liability under the FLSA.”

The lesson for employers—if you a corporate officer or owner does exercise this kind of supervisory/operational control, that officer/owner should make absolutely sure that FLSA (and state wage hour law) obligations are being totally met, or they will face personal liability.

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In a FLSA collective action, a federal judge has denied conditional certification to a class of bus drivers and bus aides, who claimed overtime violations.  The denial was founded on the premise that the employees did not make even the modicum of a showing required for the obtaining of conditional certification.  This is usually an easy hurdle for the plaintiff(s) so this case becomes instructive for employers on how to fight such actions.  The case is White et al. v. Rick Bus Co. and was filed in the District of New Jersey

All that the plaintiffs produced/adduced were paycheck comparisons between the named plaintiff and his co-workers.  Even though the standard for conditional certification is a “modest factual nexus,” which is generally interpreted by federal judges to mean a variety of things, such as a few (identical) Affidavits, the evidence submitted here did not even reach that level.  The theory of the case is an overtime denial coupled with a contention that the Company’s record keeping system was faulty, thereby resulting in further wages owed to the employees.

The judge concluded that the plaintiff “provided mere generalizations and legal conclusions. ” The plaintiff also failed to “put forth any relevant facts for the court to consider, such as the names of any similarly situated employees.”  The judge did note there are two standards for conditional certification “dueling” in the Third Circuit in that some judges require no more than an allegation that the plaintiffs are subjected to the same company practice or policy.  Most judges, however, in the Third Circuit, require more than this and need some modicum of a showing of similarity between the named plaintiff and fellow class members.

The plaintiffs have also thrown in a “rounding” allegation, alleging that the Company practice of rounding down time was improper and also violated the FLSA.  Employers are allowed to round up and down, provided that, over time, employees are not short-changed.  This will be a tougher allegation for the plaintiffs to prevail upon.

I think this case sends a message on what is actually needed to secure even conditional certification.  I believe in those cases in which the plaintiff(s) submit only naked Affidavits, which nine times out of ten are identical, the Employer is better able to defeat a motion for conditional certification on the “modest factual showing” test, especially if the employer itself can demonstrate (i.e. deposition testimony) that there were “qualitative” differences between the named plaintiff and the others.
 

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A class of Loss Prevention Managers are suing their employer in a Fair Labor Standards Act collective action, contending they have been incorrectly classified as exempt.  Their cause has advanced a step, as a federal judge has just granted conditional certification to their proposed class. The case is entitled Templeton v. Fred Meyer Incorporated and was filed in the U.S. District Court for the District of Oregon.

As I have written many times, the essence of a collective/class action is that the employer has an overall policy or practice that applies to all allegedly similarly situated employees.  The plaintiffs here allege just that, asserting that the Company had a single policy, consisting of giving all of them the same title and, more importantly, job responsibilities and that all of the plaintiffs worked more than forty (40) hours per week.  As they were classified as exempt, they did not receive overtime and there is the crux of the matter.

The Company had opposed the conditional certification motion, contending that the Loss Prevention Managers were not similarly situated.  That essentially is the only defense, i.e. that individual scrutiny is necessary because there is not an overall/common policy or practice.

The judge, however, disagreed.  “It is premature at this early stage, however, to resolve that factual dispute primarily because plaintiff has not yet been provided with discovery sufficient to test defendant's contrary assertion that other LPMs are not similarly situated to plaintiff;” stated the Court.  The judge also noted that “moreover, it is speculative to presume LPMs who performed their jobs differently from plaintiff will, in fact, opt-in to this collective action if given notice.”

There is no dispute that these workers all worked more than forty hours per week.  The lead plaintiff, Templeton, claimed that not only did he work sixty (60) hours per week.  Indeed, the Company itself had a policy (according to a certification submitted by the plaintiff) requiring that Loss Prevention Managers to work at least forty-eight (48) hours week.  The Company claimed the protection of the administrative exemption for these workers, asserting that they regularly utilized discretion and independent judgment in the performance of their duties.

Again, the administrative exemption is very tough to prove, especially on the discretion and independent judgment prong.  If these employees follow established regimens and protocols and make decisions but within defined contours and limits, they are using skill and experience, not discretion and independent judgment.

Interestingly, there is a United States Department of Labor Opinion Letter holding that Loss Prevention Managers are exempt under the administrative exemption.
 

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The Eleventh Circuit Court of Appeals court has concluded that a lower court’s dismissal of a collective action filed by accountants was legally proper on the basis that the Company did not misclassify these accountants as exempt.  In an area of wage-hour law that is rife with all manner of shades of gray, this is a great victory for this employer and employers in general.
The case is entitled Bell v. Callaway Partners LLC, in the U.S. Court of appeals for the Eleventh Circuit; the case had been filed in the North District of Georgia.

The opinion recited that “the class of plaintiffs in this lawsuit are highly educated accountants and certified public accountants who, during their employment with Callaway, often made more than $100,000 a year and thus they fall under the overtime exemption.”  The plaintiffs had evidently tried to contend that they were not “salaried” as the federal regulations demand, so it did not matter whether or not they performed “professional duties.”  This would be the only tactic open to them, especially if they were more than “staff accountants” or “junior accountants.”

As a component of their attack on the salary issue, the plaintiffs asserted that the Company paid out bonuses and paid them for work performed on weekends in a manner that transgressed against the salary basis test.  If they succeeded in showing they were not salaried, it would not matter whether they performed professional duties 100% of the time because, by definition, they would be non-exempt.

The plaintiffs charged that they were not paid by a salary basis, as the bonuses they received were reduced if they worked less than eight hours in a single weekday.  However, if they were paid a minimum fixed amount of at least $455 per week, the federal minimum, they are still considered salaried.  The Eleventh Circuit noted this, finding that “because there was a nondeductible minimum weekly salary, Callaway was free to structure any bonus program as it saw fit.”

This is the danger of an attack based on lack of a salary basis---if the employer is wrong, there is no defense and the plaintiff(s) win because it is of no avail or legal relevance that the work performed was “exempt” or “professional.”  The FLSA makes a few minor exceptions to this otherwise inviolate requirement to pay “white collar” employees a salary in order to seek to claim the exemption (i.e. doctors, lawyers), but if employers pay in any method other than a salary, the exemption is automatically lost for the employee or class of employees and then significant liability may result.
 

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In a recent posting in the Wage Hour Defense Blog, Kara Maciel brought attention to the new, intensified focus by the federal Department of Labor in auditing and inspecting health care facilities.  I represent a number of such facilities and have also noticed an uptick in such investigations, especially as concerns lunch breaks and rounding.  That post is at www.wagehourblog.com/2010/08/articles/wage-and-hour-policies/hospitals and nursing homes

As I have written about before, many health care employers (as well as others) have smart time clocks that automatically deduct thirty minutes every day for lunch.  As Kara notes, if the employee does any work during that otherwise automatically deducted period, the lunch period(s) may then be claimed to be working time.  Since patient care is a top priority and patients may and do need assistance and care at all times of the day, it is possible that employees may be interrupted during their lunch or claim that they are, even if the interruption is only for a moment, e.g. answering a question.

The difficulty of defending these claims is evident, as Kara notes.  Unless employers have built in fail-safe mechanisms to allow for the reporting and concomitant investigation of interrupted lunch claims, it will be virtually impossible to try to prove or disprove whether a certain employee actually took their full thirty minute lunch break on a day or days in the last two years.  I have advised creating a form for this contingency, placing it in boxes or containers by nursing stations or other central points and giving employees either in-service training on the procedure or otherwise documenting that employees are aware of the reporting procedure.  In that manner, employees can be properly compensated and the employer can adequately defend itself against years-later claims of unpaid working time.

The key is to be proactive.  Internal audits of compensation practices, especially those relating to exemption classification issues and working time issues, are essential. If a policy is problematic (or out rightly illegal) it should be changed immediately, so that any applicable statutes of limitations can start being eroded away.

“Eternal vigilance is the price of liberty,” said Thomas Jefferson.  It is also the price to pay for not being caught unawares in a FLSA collective and/or state law class action on issues that with careful planning and foresight could have been completely avoided.

 

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In a rather new twist on the working time class action trend, Southwestern Bell Telephone Co. is being sued in a Fair Labor Standards Act (“FLSA”) collective action, where the underlying theory is that the company has denied union representatives compensation for their time performing union-related duties.  The case is entitled Kayser et al. v. Southwestern Bell Telephone Company and was filed in the U.S. District Court for the Eastern District of Missouri.

The workers allege that their time spent representing union members at labor-management meetings are hours worked and they are not being paid, in violation of the FLSA.  The Complaint alleges that shop stewards and other functionaries of the Communications Workers of America (“CWA”) discharge a number of duties, among them the representation of union members at disciplinary, investigatory and grievance meetings.  At all of these proceedings, there is a right to union representation under the National Labor Relations Act (as well as most union contracts).

The investigatory meetings, from which discipline might be imposed, are held by the company during the “accused” employee’s work time.  Such meetings are for the ostensible benefit of the company so it can determine whether employee misconduct has occurred, claim the plaintiffs.  On those occasions when the employee asks for union representation, the Union provides the representative.  An analogous procedure is utilized when the meeting is to impose discipline on a member, hear a grievance presentation, or any other labor-management purpose.  Again, the common denominator, according to the plaintiffs, is that the meetings are held on employee work time.

The employee/representative plaintiffs seek overtime, based on a theory that these hours would take them beyond the statutory threshold for overtime, i.e., 40.  As a “side issue,” the complaint alleges that employees are chilled and deterred from seeking to become union functionaries because they know their compensation will suffer.  The employees seek an injunction, as well as liquidated (i.e. double) damages and attorneys’ fees.  The class purports to cover current/former union representatives in Missouri, Kansas, Oklahoma, Arkansas and Texas.

There is a specific FLSA regulation addressing the issue of whether time spent in union matters is working time. 29 CFR 785.42.  The regulation leaves that determination to “the process of collective bargaining or to the custom and practice under the collective bargaining agreement.” I daresay that the employer will defend by asserting that if this matter is not specifically addressed in the labor contract, it means the parties never intended for the time to be compensable.  The case is interesting because it highlights the interplay or, some might say, the tension, between federal labor law and the FLSA.
 

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I have posted numerous times on the issues of preliminary and postliminary work and whether these activities are compensable.  Part and parcel of this issue is whether such time is compensable.  A recent case highlights (again) this issue and the confusion that well-intending employers face when determining whether or not to pay employees for alleged working time.

A federal judge has granted conditional certification to what could be a class of 8,000 workers employed at Huhtamaki Inc.  The suit alleged that this company, which does consumer packaging, did not pay employees for so-called “off-the-clock” work that it mandated they do.  The case is entitled Shockey v. Huhtamaki, Inc. and was filed in the District of Kansas.

The theory is that the company improperly rounded the time of the workers to reflect their scheduled shift times, when they actually (according to the allegations) engaged in tasks before their shift and after their shifts had ended.  Although the judge found that rounding policies varied amongst the company facilities, which are situate in ten states, there was sufficient similarity to make a granting of conditional certification appropriate.  At a later stage in the case, the employer-defendant will be able to (possibly) make a showing of sufficient dissimilarity as to reverse the designation of the matter as a class action

A serious allegation is that the company erased or wiped out time that was recorded on time cards.  Such a deliberate policy, if proven true, could have serious consequences for this company.  The gravamen of this allegation is that the non-exempt employees were compelled to arrive early and stay late to perform productive work, but the company intentionally erased that extra, what seems like, working time.

The company has defended by asserting that the plaintiffs did not sufficiently set forth the precise tasks they were engaged in.  The company also denied that an overall policy or plan that was intended to preclude employees from getting their rightly due compensation, contending that in numerous instances, the company did in fact compensate employees for working additional time.
 

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I have defended a number of Fair Labor Standards Act (FLSA) class actions and individual suits and many of these result in settlement.  When these cases are settled, naturally, a document is drawn up for the plaintiff(s) to sign.  These settlements, under law, must be judicially approved and if they are not, both parties (especially the defendant)  run the risk  that the settlement may be invalid and the plaintiff(s) then legally able to continue the lawsuit.   A recent case illustrates the dangers inherent in negotiating and finalizing settlements in FLSA cases.

In Dees v. HydraDry, Inc. filed in the Middle District of Florida, a federal district judge, who received a joint stipulation for dismissal of an overtime suit, issued an opinion in which he stressed the role of the court in assessing the worthiness of settlement agreements; the opinion emphasized that confidentiality agreements in FLSA settlements will not receive judicial approval.

If the settlement includes full relief, meaning that it includes the liquidated (i.e. double) damages and attorney’s fees, then the parties need not request judicial review, but if there is some form of compromise, meaning that the employee has given up any rights in the settlement, then court approval is necessary.  The judge wrote that if “the employer in a FLSA case might offer full monetary compensation to the employee for the FLSA case might offer full monetary compensation to the employee for the FLSA claim, but might require the employee to refrain from informing fellow employees about the result the employee obtained.  Or the employer might require the employee to trim the shrubbery at the employer’s home each weekend for a year.  In either instance, the employee outwardly receives full monetary compensation for his unpaid wages, but effectively the additional term. . (the ‘side deal’) confers a partially offsetting benefit on the employer.”

In order to ensure that the spirit and substance of the FLSA is protected by a settlement, the judge stated that a court should engage in a two-fold analysis.  The first step is to determine whether the compromise is fair and reasonable to the employee.  If that threshold is reached then the court must examine whether the settlement in any other manner improperly undermines the “values” embodied by the FLSA.  In other words, a court should approve the settlement only if the settlement is fair to the employee and facilitates the purposes of the FLSA.

The judge outlined the following factors in determining whether the settlement is fair to the employee: 1) the existence of fraud or collusion behind the settlement: 2) the complexity, expense, and likely duration of the litigation; 3) the stage of the proceedings and the amount of discovery completed; 4) the probability of plaintiff’s success on the merits; 5) the range of possible recovery; and, 6) the opinions of counsel.  The court also opined that such settlements should not ever be confidential, as the court’s action in approving such a settlement was a “public act.”

In conclusion, settlements are a necessary, indeed, vital component of resolving FLSA cases.  The last thing the employer wants is to reach a settlement and then have a court throw it out or worse, not seek judicial approval and learn later that the case it thought was finished has been revitalized through the employer’s own fault (i.e. not submitting for judicial approval).
 

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In another of the slew of tip pool cases that have ripped through the restaurant industry in New York City and elsewhere, a federal judge has granted class certification to workers who receive tips in the Smith &-Wollensky Restaurant Group Inc.  These employees allege that the chain has improperly required them to pool their tips in a manner proscribed by the law.  The case is entitled Schmidt v. Smith & Wollensky and was filed in the U.S. District for the Northern District of Illinois.

The lawsuit charges that Smith & Wollensky did not comply with the Fair Labor Standards Act (FLSA) rules regarding the tip-credit provisions of the Fair Labor Standards Act and Illinois wage law  The “tip credit” allows an employer to pay less than the federal minimum wage, on the assumption that the employee will make up the difference in tips.

However, certain rigid requirements must be met. If employees who do not receive tips as a customary function of their job duties, they cannot share in the pooled monies.  The complaint charges that such employees did share in the pool and, as such, the validity of the tip pool is destroyed and the employer then loses the ability to claim the tip credit.  What follows then is that for every hour worked, the employer has not properly paid the minimum age and tremendous liability (potentially) arises, depending on the number of employees involved and how far back the statute of limitations goes (e.g. two or three years under FLSA and longer under state law).  In this case, the complaint charges that the employer required servers to share tips with “expediters, dishwashers, silver polishers and coffee makers” and also included a manager in the tip pool.

In granting class certification under Rule 23, the state law claim, the judge rejected the employer’s argument that the class was unduly broad as it sought to include all of the employees receiving tips, not just servers.  This was based on holdings by the Court of Appeals for the Seventh Circuit which has determined that a class is too broadly defined if it seeks to include employees who could not have a recovery or suffered an injury at the misconduct of the employer.  The District Court judge, however, ruled that the manner in which the class was defined was not overly broad because it “appropriately includes those employees who ‘could’ have been injured by defendant's alleged conduct.”

In the restaurant industry, tip pooling arrangements are under constant focus and are the targets of a rash of class action lawsuits.  One way to resolve this dilemma is not to tip pool and just allow each waiter to receive/keep his own tips.  The downside is that there will be fights over good “stations” and other possible employee discord/unrest.  This may a smaller price to pay than thousands (or hundreds of thousands) of dollars in damages.
 

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In Florida, an Assistant Manager has filed a class action against RadioShack Corporation, alleging that the company has misclassified these managers as exempt executives and has not paid them overtime.  The case is Truax v. RadioShack Corp. and was filed in the U.S. District Court for the Southern District of Florida.

The plaintiff is also claiming that Radio Shack “knowingly and willfully” violated the Fair Labor Standards Act; this is an attempt to extend the otherwise two-year statute to three years and to recover liquidated (i.e. double) damages.  The plaintiff is claiming that the company failed to pay time and one-half for the overtime hours.  The named plaintiff claimed he regularly worked 55 hours every week but was only paid straight pay for the hours, rather than time-and-a-half that is mandated by the FLSA.

In another case, RadioShack is alleged not to have paid workers for attending store meetings. In that case, Kamar et al. v. RadioShack Corp., the U.S. Court of Appeals for the Ninth Circuit has affirmed a lower federal court ruling that granted class certification to the plaintiffs.  That case involved mandatory meetings (on Saturday) that non-exempt employees attended and were not paid for.

On the Assistant Manager issue, the best defense is that these workers are truly exempt. The second best defense is that the class certification motion must fail because individualized assessment of each Assistant Manager is needed because some might have exercised more managerial duties than others.  The need for individual scrutiny is the antithesis of a class action .

As far as the mandatory meetings, this is basic FLSA law.  Non-exempt employees compelled to attend meetings or trainings are on the clock. 
 

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Statistics were just published showing a rise in litigation under the Fair Labor Standards Act.  This highlights the fact (something we have seen for some years, now) that there is a semi-organized network of plaintiff side lawyers specializing in FLSA cases who are actively seeking out these cases and also highlights the fact that, under a Democratic administration, there is a more employee-friendly federal Department of Labor.

FLSA cases filed in federal courts rose almost 23% in the second quarter of 2010 and represents a leap of 25% from the first quarter of 2009. From January 1-June 30, 2010, there has been a total of 3,230 FLSA cases filed.  That is 6% more than for the same time frame in 2009.

Why are we seeing this?  As a management side practitioner, as someone who defends such cases, I wonder about it and then the answer dawns on me, clear as day.  The FLSA (and all state wage-hour laws) are fee-shifting statutes, so there is an incentive for a plaintiff attorney to engage in this work, because there is a decent chance of a payday.  Second, these laws contain a lot of gray in them and employers who are striving their utmost to comply in good faith will often unintentionally run afoul of the myriad rules and regulations.

Lastly, but not of least importance, the ability for plaintiffs to gain conditional certification in a FLSA case is fairly common.  Not that much “proof” is needed and then the burden dramatically shifts to the employer to try to de-certify the class (not often done) or, as often happens, settle the case, to avoid more plaintiff attorney fees accumulating.  The last option, often times, is go to trial, especially in a classification case, especially where the administrative exemption is at issue.

For example, the DOL issued a position statement, an Interpretation, holding that, in many instances, mortgage loan officers do not qualify for the administrative exemption.  The Interpretation rescinded two prior DOL Opinion Letters, both of which gave employers a cubbyhole to classify employees as administratively exempt.

In sum, it is more important than ever to be proactive and “self-reflective” for employers. Self-audits or internal audits of compensation practices, classification decisions and analyses and working time issues must be conducted by HR or labor counsel.  If something is wrong, it should be fixed immediately, as to stop a running liability and the maintenance of an “eternal” two (or three) year statute of limitations.  With the stakes in these cases very high, with the burdens of proof (at least initially) for plaintiffs distinctly modest and the fess shifting component, it is far better to be safe than very sorry.
 

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A few months ago, I posted about a law firm sued for overtime by a paralegal.  In this latest case lodged against another law firm, a securities and antitrust plaintiff’s law firm named Labaton Sucharow LLP, a former attorney has filed a class/collective action seeking overtime.  The suit was filed under New York law and the Fair Labor Standards Act.  The case is entitled Koplowitz v. Labaton Sucharow LLP and is in the U.S. District Court for the Southern District of New York.

The suit’s primary contention is that because the attorney was paid hourly and worked more than forty hours, he was entitled to overtime compensation and not paid it . I find this a challenging theory because it is my understanding that lawyers (and doctors) can be paid hourly, under the Fair Labor Standards Act and still qualify for the professional exemption.  See 29 CFR 541.304. Perhaps the twist here is that the plaintiff is alleging that New York State does not recognize this exception to the salary requirement, but then why would the suit also be filed under the FLSA?.

Notwithstanding the FLSA carve-out for lawyers and doctors on the salary issue, the plaintiff’s attorney has boldly asserted that “the law is simple.  Employees paid on an hourly basis cannot be exempt under the FLSA’s `white-collar` exemptions.  It is disturbing that a prestigious law firm would pay employees in clear violation of the law.”

The plaintiff's attorney must have a countervailing argument to escape the dispositive force of the FLSA regulation because he filed the case as a collective action, ostensibly on behalf of all attorneys employed by the firm within the last six years who worked in excess of forty (40) hours per week and were paid hourly.

The other problem for the plaintiffs, as I see it, is that New York generally follows the FLSA regulations and guidance on exemption issues, meaning that New York will likely adopt the same rule that lawyers are exempt, even if paid hourly . One argument might be to contend that the duties assigned to the plaintiff were not lawyer duties and thus did not constitute exempt work.
 

I will follow this with interest and report back. 

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Bimbo Bakeries has been hit with another wage-hour collective action in which the allegation is that the delivery drivers claim they have been classified as independent contractors, when they are really employees.  They seek wages and the employment benefits they would be due as statutory employees.  The drivers also allege that the company makes them pay for the trucks and the rights to distribute the products. The case is entitled Scott et al. v. Bimbo Bakeries USA and was filed in the Eastern District of Pennsylvania.

Bimbo Bakeries manufactures Thomas’ English Muffins, Entenmann’s and a host of other products.  The complaint alleges that the company has imposed an “unlawful and unconscionable” distribution agreement on the drivers.  The complaint also contends that although the company exercises significant control over the manner and means of the delivery business, it nevertheless deems them to be independent contractors to cut down on company business expenses, at the same time transferring many of these business expenses to the drivers.

In this regard, the workers allege that Bimbo has illegally transferred the obligations of purchasing and maintaining trucks and equipment to them and that they are, in essence, really subsidizing the company operate its business.  The workers contend that, through this contrivance, Bimbo has avoided all state and federal employment taxes, workers’ compensation and unemployment compensation obligations.  The company’s answer to these issues has been to compel the drivers to pay those business costs themselves.

They also charge that the unfair and skewed distribution agreement compels the delivery drivers to purchase the distribution rights for an area, at the same time the company is maintaining rights over the distribution.  The company takes monies out of the plaintiffs’ compensation for the truck payments, gasoline, payments for computers, insurance and other business expenses.

There are approximately sixty (60) alleged members of the class; the plaintiff who filed the suit worked in Mt. Laurel, New Jersey.  Bimbo, however, maintains many depots throughout the country and it is alleged that the same policies are in effect at these other locations.  In other words, the specter of a nationwide class action now may be baking in the oven for this company.

In any independent contractor analysis, the two crucial analyses are whether the putative employer exerts control and whether the worker is in an independently established business.  From the allegations in the complaint (and that is all they are at this point), it may be that too much control is exerted.
 

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An equipment technician has filed a Fair Labor Standards Act collective/class action against Ingersoll-Rand Company.  The allegation relates to alleged working time, i.e. travel time, that the company did not pay workers for.  These workers drive all over the New England performing installations, service and repairs.  The case is entitled Nelson v. Ingersoll-Rand Co., and was filed in the U.S. District Court for the District of Massachusetts.

The employee’s theory is that the work now being performed off-the-clock work is “integral and indispensable” to his primary job of being a technician.  Under the FLSA, it is the “integral” nature of the preliminary or postliminary activity to the main job that determines its compensability or lack thereof.  The actual, main job involved the repairing of equipment such as hoists, cranes, air compressors and air dryers..

The employee contends that before September 2008, the company did pay the technicians for their travel time, but this abruptly ceased.  The company implemented a new “hours and operations and expectations” policy that specified the daily work hours, but, now, explicitly excluded travel time as compensable hours.  However, the suit charges that although the company stopped paying the workers for travel time, it nevertheless continued to charge its customers for time it took the technicians to travel to and back from the customer location.

The lawsuit also alleges that the technicians are no longer paid for the time it takes them to don and duff what they deem to be protective clothing.  As I posted only a few weeks ago, the United States Department of Labor has recently issued an Interpretation on when such donning and doffing time is compensable.  If these allegations are correct and the gear that must be changed into is for the mens’ safety, the time likely would be compensable. 

The workers also claim that the time they take in powering up their equipment, loading tools, communicating with management, i.e. dispatchers and arranging their job schedules and assignments is also compensable.  Again, the focus of the court will be on whether these activities are so essential to the main job that payment is required or whether they fall under the de minimis doctrine.

I gave a webinair on "What Constitutes Working Time" just yesterday.  See www.foxrothschild.com/redirect_webinair_whatIsWorkingTime_063010.asp

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A class of former Domino’s Pizza LLC delivery drivers has succeeded in gaining conditional collective action certification in a Fair Labor Standards Act lawsuit in which they allege that the gigantic pizza chain paid them below the minimum wage, through the device of making them buy their own gasoline!  The case is Luiken et al v. Domino’s Pizza LLC. and was filed in the U.S. District Court for the District of Minnesota.

In the conditional certification stage, the burden for the plaintiffs is light.  They need to present some evidence that an overall policy or practice of the company was applied to all of them and from the application of that policy/practice, they were improperly paid.  Once they do that, they receive conditional certification, which can be challenged at a later time by the employer in a de-certification motion.

In response, Domino’s took the “traditional” employer position/defense, i.e. that conditional certification is inappropriate because the plaintiffs are not similarly situated and the court would need to engage in individualized examinations of the various employee claims.  The company also claimed that additional individual factors, such as the particular car model, route and total mileage affected reimbursements for gasoline expenses

The plaintiffs argued that there were but minor regional differences and were really nothing more than computational variations on a common theme, which was the overall unfair and wage-hour violative policy.  The court agreed with the plaintiffs, noting that at the conditional certification stage, all that is required of a class of putative plaintiffs is they establish a reasonable basis for their claims, meaning that all plaintiffs were subject to the same policy or decision,  This lenient standard was met through the submission of twelve affidavits from employees in four states. All of the affidavits (not surprisingly) made the same allegations and assertions.  The court also ordered the notice be sent to all possible class members, to stop the statutes of limitation from running, as each plaintiff’s own statute of limitations and recovery period is determined by the specific date he/she opts in to the case.”

This lawsuit highlights the fact that a collective action can emanate from anywhere, even from a company policy that, at first blush, appears innocuous and of little concern. 

We will wait and see if the plaintiffs end up saying “fill it up!” but not referring to their gas tanks, but rather their wallets.
 

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A group of employees has filed a lawsuit against a high-end Greek restaurant situate in the vacation haven of the Hamptons.  The plaintiffs, servers, are alleging that the employer improperly implemented a tip-pooling policy that violated the Fair Labor Standards Act (“FLSA”).  Four employees filed the case, but the allegation is there are 75 others similarly situated.  There has lately been a rash of tip pool class and collective actions filed, with large settlements and verdicts inuring to the plaintiffs.

This is because unless a tip pool is correctly implemented, the employer loses a significant advantage that it enjoyed, namely, the taking of the tip credit and then major minimum wage violations occur.   The case is entitled Sierra v. Orama Inc and was filed in the Southern District of New York.

Under the federal law (and most states), employers may take a tip credit, as concerns their tipped employees, i.e. waiters, busboys, bartenders, etc.  This means that the restaurant need not pay the full minimum wage (i.e. $7.25 per hour) but it pays only a small fraction of that (approximately 50%) with the assumption that the employee will derive the balance of at least the minimum wage from customers leaving tips.

If, however, employees who do not “customarily and regularly” receive tips are included in the pool, or a management employee shares in the pool, the validity of the pool is destroyed and with that destruction, the tip credits that had been taken by the employer are also ruled invalid.  That means for each hour worked by the tip employee, there is a shortfall for payment of the minimum wage. That means large-dollar violations.

The plaintiffs’ theory herein is that managers shared in the tip pool.  This has been the allegation in a number of cases emanating out of New York City restaurants, some of them very famous.  The lesson for restaurant employers is to ensure that managers have no share in the tip pool.  If uncertain as to whether someone is a true “manager,” it is safer to consider them as such and not to include them in the tip pool.

The downside is a very, very upset stomach for the employer.
 

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A few weeks ago, I posted on the new federal Department of Labor policy to now issue position papers, as opposed to responding to requests for opinion letters. On this subject, there has been a rash of cases, many of them class actions, on whether certain preliminary and postliminary activities related to putting on safety equipment and safety clothing is compensable work time. With the position issued on June 16, 2010, the US DOL has taken the position that it is in fact working time.  See Administrator’s Interpretation, 2010-2.

The position paper focused on whether safety equipment can be considered clothing, because under the FLSA, clothes changing is not compensable.  The DOL studied the precedent, mostly arising from the food industry, where employees are mandated (by health laws or agency requirements) to don and duff protective gear.  The agency reviewed earlier Opinion Letters it had issued and rescinded some which were not consistent with the current position paper.  In sum, protective clothing or gear that must be worn is an integral part of the employee’s job and is therefore compensable..

The position paper also addressed the issue of whether clothes changing (which is itself non-compensable) can be deemed a “principal activity” that starts an employee’s continuous work day. The agency ruled that such an activity may start an employee’s work day, meaning that all activities following that “start,” including walking to the work station, then are also compensable. The agency ruled that this activity can start the work day.  This occurs when the activity is deemed essential to the employee’s job.  This is an important ruling because it could require compensation to be paid, whether or not the clothes are safety-oriented or not.

The key issue for employers to focus on is what is the nature of the preliminary/postliminary activity and what is the relation to the main job.  The employer also need not be in the food processing industry to be impacted by this position paper.  For example, in a restaurant, if the employer requires cashiers to report ten minutes early and leave ten minutes late to balance their cash drawers, that activity will be deemed integral to the main job and therefore compensable.

These kinds of activities are likely engaged in by numerous employees, if they are engaged in at all.  This means that there will likely be found (if a class action is filed) a common, overall policy that applies to the activity, which is the necessary component to allow a court to find that a class exists.  Accordingly, employers must scrutinize the job functions of their employees as to whether any “work” or “preparation” is done before/after the main job and analyze the relationship between the two to determine compensability.

I am giving a Webinair on these issues on June 30, 2010. Learn more about the working time webinar.

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A case has recently issued that provides instructive guidance for employers who may want to insulate themselves from potential liability in a class action lawsuit.  A federal judge has ruled that an entity, a sub-contractor that provided janitorial personnel and crews to Target Corp. was contractually obliged to indemnify Target in a Fair Labor Standards Act lawsuit where the janitorial employees sued Target and the contractor for unpaid overtime compensation.  The case is entitled Itzep et al. v. Target Corp. et. al and was filed in the Western District of Texas..

Significantly, the defendants did not contest the fact that the workers did in fact work more than forty hours, but were not properly paid overtime.  The dispute was really about which defendant would have to pay the damages.  The subcontractor, Jim’s Maintenance, contended that the indemnification provision was facially illegal as it was void under the public policy of the State of Minnesota (the state that the parties agreed contractually controlled the claim).

The federal judge rejected that contention.  The judge agreed that the public policy of Minnesota was not offended by this contract, which was between two commercial entities.  It was a business transaction.  The judge also held, however, that Target was precluded from seeking indemnification for defense costs, as it did not tender the defense to the subcontractor as required by the contract, but the court held that the company could seek indemnification for its other expenses.

The bottom line was that the subcontractor was obliged to pay its employees, not Target.  When it did not pay, the workers sued both entities and won the judgment, but then target could, on the “back end” go after the subcontractor as it was and remained that entity’s legal obligation to pay the workers. That is unless the entities were found to be joint employers (which they were not).  This scenario posed an entirely different set of perils for an employer who subcontracts out certain work (most commonly cleaning and janitorial) but whose supervisors may exercise nominal or putative authority over the subcontractor’s employees when they work at the customer, i.e. Target.

The lesson for employers engaged in such subcontracts is to apportion the liability for unpaid wages, overtime and discrimination and other claims to the subcontractor for its employees.  This can be done via provisions in the contract that spell out the obligations of each party and what will happen, i.e. indemnification, if a particular party does not live up to those obligations.
 

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The Seventh Circuit Court of Appeals (based in Chicago) has reversed a district court judge who dismissed two Fair Labor Standards Act overtime collective actions instigated by a group of Chicago paramedics because the lower court judge found the claims were “hopelessly heterogeneous.”

Such a finding means that there is not the overall, common pattern, practice or policy that is the hallmark of a collective or class action. Instead, the federal appellate court ruled that the judge should have considered sub-classes, thus allowing the litigation to be maintained.  The case is entitled Alvarez v. Chicago.

The paramedics charge that the City of Chicago did not pay them proper overtime in ten different manners, but not every paramedic was impacted by every one of the allegedly improper pay practices.  Thus, on one hand, the plaintiffs argued that they were “similarly situated “ as to the overall premise of being denied overtime, but also that they each fit into one or more sub-classes. They claimed that once they were properly cubby-holed, the calculation of their individual damages would be relatively easy and a mechanical process.

“If common questions predominate, the [paramedics] may be similarly situated even though the recovery of any given [paramedic] may be determined by only a subset of those common questions,” the Court concluded.  The Court ruled that the federal district court judge erred by not even considering the establishment of sets of sub-classes.

The lower court was also criticized (and reversed) for not determining whether paramedics could proceed as individuals or via a series of separate classes, which would have been an alternative to a single, unified collective action.  There are currently about 300 paramedics involved in the litigation as they have signed the necessary opt-in forms, necessary under a FLSA collective action.

I believe this case presents an important question.  When is there sufficient dissimilarity, or a lack of a common policy, as to warrant a denial of conditional certification or a decertification of the class once certified.  When is there a sufficient overall similarity so as to allow a court to conclude that something is wrong for everybody, but that “something” is different for various groups so that they deserve their own sub-class.  A gray, gray issue, which may have to go beyond the Seventh Circuit to the US Supreme Court.
 

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I have handled a number of wage-hour class actions where the plaintiffs allege federal (i.e. Fair Labor Standards Act) and parallel/identical state law claims for wages and overtime. Here, in New Jersey,  I have made motions to sever the state claims because they cannot exist as a component of the FLSA action due to the inherent tension in the opt-in (federal) versus opt-out (state) procedures.  Now, the legitimacy of pursuing two actions will be resolved (maybe, maybe not) by at least one Circuit in a case now coming before it.

The Second Circuit will decide whether a collective action can proceed with identical state law claims co-existing with it.  The case is Shahriar et al. v. Smith & Wollensky Restaurant Group, Inc. The Circuit has granted the company special leave to appeal the decision of the federal district judge that has allowed both claims to simultaneously proceed, as the judge certified a class of current and former waiters, who worked at the Park Avenue Café, for their New York State Labor Law claims.

Since the state case is opt-out, the number of plaintiffs in that case is significantly higher than the number of plaintiffs who chose to top in to the federal, FLSA, collective action case.  In fact, only twenty-two (22) employees opted in to the federal case, while the parallel state case contains an employee class of almost 300 employees.  There is, to me, something fundamentally and diametrically wrong with such a construct as it allows the plaintiffs and their lawyers to have the best of both worlds.

The company charges, and I think with some validity, that the plaintiffs are using the state claims to widen the scope of the case and, according to the company, “extort” a massive settlement.  Indeed, the company would be under pressure to settle, if it were, in the end, facing a class of 300 as opposed to two dozen..

The lawyers for the plaintiffs shot back that the defendants should be careful what they wish for when they contend that both suits cannot remain parts of the same litigation.  If the suits are severed, the defendant will have to fight cases in both federal and state court.

The case itself involves allegations that the tip pool was destroyed by inappropriate people sharing in the tips, such as managers.  When this happens, the tip credit that the employer has been allowed to take is destroyed, creating shortages in minimum wage payments and the liability for the company escalates dramatically.

I will be watching this case closely, as will all practitioners of wage hour law, especially on the defense side.
 

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A federal judge has thrown a nationwide collective action against Black & Decker out of court.  The suit alleged that the company did not pay employees for time allegedly worked off the clock.  The court found that the plaintiff did not prove that he had worked overtime.  The case is entitled Kuebel v. Black and Decker (U.S.) Inc. and was filed in the federal district court in the Western District of New York.  There could have been more than 200 employees involved.

This is a rare occurrence.  The granting of so-called conditional certification is usually a fairly easy hurdle for a plaintiff to overcome.  A few affidavits, perhaps some deposition testimony and that’s it. The key remains that some showing of similarity must be made, some showing that an overall policy or practice applied to all of the employees potentially involved.  That this plaintiff could not make the showing is significant.

The court found that the plaintiff “has not explained when and for how long he performed the off-the-clock work.”  The court continued and stated that “ because the undisputed facts demonstrate that plaintiff has failed to meet his burden, his claim for off-the-clock work fail as a matter of law.”

What is interesting in the context of this particular case is that the company had stipulated to the conditional certification of a class that was solely confined to the company policy of paying retail specialists for travel time, but only if the employee’s commute was more than sixty miles or sixty minutes.  The judge had found this policy legal in May 2009. (Note: Home-to-work travel is always non-compensable, so a company can legally implement a policy of paying for some component of this travel time if it so desires).

This does not often happen and that is why I write about it when it does.  The lesson for employers, on the merits of the controversy, is that they must never direct employees to do productive work off-the-clock and should have a policy in place relating to that issue.  Also, maintain accurate records of employee working time and, most importantly, have employees self-certify their working time (e.g. sign off on time card) every week.  That is the employer’s fail-safe, best protection against such suits.
 

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There are employers whose “smart” time clocks automatically make a thirty minute deduction every day for lunch, supposedly and assumedly taken.  I have railed against this practice, advising that the far safer thing is to have employees punch out and then back in for lunch, because someone, somewhere down the line, will assert that they worked through lunch but nevertheless had that half-hour deducted.  That chicken has now come home to roost.

A hospital/nursing home owner, Kindred Healthcare Inc. has been accused, in a proposed class action, of not properly paying employees because this employer has an automatic lunch deduction system, that deducts time for lunch, even if the employee allegedly did not take the lunch.  The case is entitled Samuel v. Kindred Healthcare, Inc. filed in the U.S. District Court for the District of Massachusetts.  It is couched as a collective action under the Fair Labor Standards Act (“FLSA”).

The Complaint alleges that there are “thousands” of potential class members.  This timekeeping system automatically deducts a 30-minute meal period from employees, but the employees contend they often have to work through lunch on patient care issues.

The Complaint also alleges that employees must stay at their desks or posts during their breaks and continue to work.  Work, according to the Complaint, “includes responding to pages, answering the telephones, replying to requests by patients, co-workers and management, and performing all other duties and responsibilities that are required.”

These cases are very tough for the employer to prevail upon, especially in a health care environment, where it is not beyond the realm of possibility that patient tasks and responsibilities might keep a worker (or workers) busy during their lunch.  To the contrary, it is also impossible to imagine that one thousand employees never took lunch for two years.  The worrisome thing is that by making the automatic deduction, without having some “fail-safe” mechanism in place so that employees can report that they worked through lunch, have the claim investigated and, if true, the time paid, then the employer has left itself very little wiggle room and a tough case to defend.

Smart clocks may be silly policy!
 

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In yet another case involving Assistant Managers, the named plaintiff in a exemption misclassification case has moved for conditional certification, after successfully defeating the defendant-employer’s Rule 68/Offer of Judgment strategy.

I have written about Rule 68 many times and have urged that this is a viable way for a defendant to close a case out, without going through the torture of protracted, extraordinarily expensive litigation. In this case, however, the federal judge concluded that this was an attempt to “pick off” the lead plaintiff and thwart the case for everyone else, so he denied the motion and is allowing the case to proceed.  The case is entitled Nash v. CVS Caremark Corp and is in federal court in the District of Rhode Island.

The employer moved for dismissal, on mootness grounds, as I have done, after making an offer of full relief to the named plaintiff in July 2009.  When the plaintiff rejected the offer, the company argued that the court no longer had jurisdiction over the case, because by rejecting the offer that would have provided him the maximum possible recovery, the plaintiff could not legally pursue the matter.

The court disagreed.  The judge saw this as an effort to cut the head off the case and prematurely terminate the litigation.  The judge wrote that “the present motion underscores the unique danger of tactical manipulation in FLSA cases.”  The court went on to note that “nothing in Rule 68 itself suggests that it should be used as a vehicle for sabotaging claim-aggregating devices.”  To the court, this defense action created a “virtually unwinnable” situation for plaintiffs in collective actions.

The judge saw the tactic as forcing the plaintiff to either pursue discovery very early in the case, when a court likely will deem it premature, or seek class certification and/or notice before discovery, which runs the risk of harming the interest of these as-yet undiscovered class members.  The judge decried this “moot-and-dismiss” tactic, as it might allow the company to forum-shop as well as plaintiff-shop.

I disagree with this judge.  Rule 68 exists and it exists for just this purpose.  I believe if the named plaintiff (and any early opt-ins) turns down the Offer, the case is and should be amenable to dismissal. Another response is to make the Offer to all class members, i.e. those who properly opt in to the action.  Then, the pick off argument fails.
 

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I have posted numerous times on the issue of when preliminary or postliminary job “duties” become compensable.  If the employer is unaware that they might, or missed the mark, the result can be and often is a class action lawsuit, oftentimes seeking overtime compensation, as these “work activities” often bring the hours worked to more than forty in a week.  In Rutti v. Lojack, the Ninth Circuit Court of Appeals dealt with an unique variation on this theme, one which has troublesome ramifications for all employers.

The plaintiff sought to bring a class action on behalf of the employer’s nonexempt technicians who travel each day from worksite to worksite in an employer vehicle installing alarms in customers’ cars.  The plaintiff wanted to be paid for his pre-work activities, his commute time and his post-work activities including completing a required report by modem.

The Ninth Circuit found that most of these activities were not compensable work time.  The court found that the plaintiff’s commute time was not compensable, even though he was provided with a company car.  The court rejected the plaintiff’s argument that the restrictions on use of the car imposed by the employer rendered his commute time an integral part of his workday.  The restrictions had included a prohibition on personal use and transporting passengers, a requirement that the employee drive directly from home to work and from work to home and that the employee keep a cellular phone turned on.

The court also found that his preliminary activities of receiving assignments, mapping his route and prioritizing his jobs were not compensable either because such activities were de minimis. The employer required its technicians to transmit data about their daily activities from home by modem at the end of the workday and this took 10-15 minutes, and required the employees to come back later to verify the transmission was received.  Whether these activities are compensable will depend on: (1) the practical administrative difficulty of recording the additional time; (2) the aggregate amount of compensable time; and, (3) the regularity of additional work.

There are valuable lessons here for employers.  Giving a company car does not render commute time compensable.  Planning your workday before work is not compensable, nor are minor tasks before or after work.  But the real lesson here for employers, and the safest course, is to avoid mandating any specific pre-work or post-work tasks to be done on the employee’s own time.  If the nature of the work requires such tasks, this case provides guidance on how to structure those tasks to keep them non-compensable.
 

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A federal judge has granted conditional class certification to a class of workers at a subsidiary of ATT, who are alleging a failure to pay overtime.  The case is entitled Wlotkowski et al. v. Michigan Bell Telephone Company, filed in the Eastern District of Michigan.

These outside plant engineers made a sufficient showing to the judge for her to order conditional certification and the sending of the opt-in notices to similarly situated people.  The company must provide names and addresses within ten days so that opt-in notices may be sent. These employees draft plans which are then used by other employees use to install telephone lines in their proper locations.

The issue arose when the Company reclassified the workers from exempt to non-exempt under the Fair Labor Standards Act (“FLSA”).  This is a red flag for employees and Department of Labor alike, because the employees questioned (as anyone would) if their duties were identical pre and post re-classification, why were they not getting overtime pay prior to the re-classification. Instant lawsuit!  Moreover, the Company does not dispute that the employees worked in excess of forty (40) hours per week during the relevant time period (i.e. three years prior to date of complaint filing).

The thrust of the workers claim is that they are not “engineers,” as they hold no professional degrees which would qualify them for the professional exemption.  They claim their duties are more clerical in nature and they do not exercise any managerial or supervisory responsibilities. Interestingly enough, they all hold the title of “Manager, Outside Plant Planning Engineering and Design.”

This case highlights two significant problems.  First, titles mean nothing.  Calling someone a “Manager” does not qualify them for any exemption.  The analysis, whether by a DOL, or a court, will always be on what the actual duties are.

Second, more importantly, employers who set about to re-classify workers must be aware of what their possible back pay exposure will be (because all it takes is one person to complain, or sue) and either proactively deal with that, i.e. pay it, or develop a sufficiently polished spin when employees are informed of the reclassification to (hopefully) avoid any one complaining or suing. Not an easy task!  Either way.
 

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I have often lamented that the administrative exemption is the grayest of the three white-collar exemptions and the toughest to prove.  There are, however, some notable exceptions to this rule.  A federal court has granted summary judgment to a temporary employment recruiting firm, where the former employee, an Account Recruiting Manager, alleged he was non-exempt and entitled to overtime under the Fair Labor Standards Act (“FLSA”).  The case is entitled Andrade et al. v. Aerotak Inc. and was filed in the District of Maryland

The court held that the recruiters were not so-called white collar production workers and fit within the administrative exemption.  Interestingly, although the suit was originally filed as a class action, the court denied conditional class certification, because there were too many individualized determinations necessary.  In other words, the plaintiff failed to demonstrate a common policy, practice covering these workers.

The duties of the recruiter involved finding and placing financial services professionals in various contract positions with the staffing company’s clients, the contracts usually ranged from 6-12 months.  The company claimed the exemption and the court agreed; on the critical issue of discretion utilization, the court found the workers used independent judgment involving matters of significance.

The court essentially held that the recruiters were performing the functional equivalent of work performed by Human Resources people and they were not simply churning out the employer’s “goods,” which is the crux of the white-collar production “doctrine.”

The toughest line to draw is whether an individual is using skill and experience or discretion and independent judgment.  The employer defense of administrative exemption usually, in my experience, founders on this very point.  Perhaps this case gives a roadmap for future defenses as to how the discretion component of the administrative exemption should be presented and argued.

I think it does!
 

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I have written many times on the questionable exempt status of mortgage loan officers, brokers, mortgage originators and other similarly titled employees.  I have called attention to the proliferation of class/collective actions against mortgage and banking companies on this issue. Now, the US Department of Labor has issued definitive guidance.  Now, except in certain circumstances, mortgage loan officers will not qualify for the administrative exemption under the Fair Labor Standards Act.

If they perform supervisory duties, they may still fall under the executive exemption, but the most commonly urged exemption for them, i.e. administrative, is now foreclosed.  The DOL concluded that “mortgage loan officers typically have the primary duty of making sales on behalf of their employer; as such, their primary duty is not directly related to the management or general business operations of their employer or their employer’s customers.”  The interpretation continues on to note that mortgage loan officers will not qualify for the administrative exemption because their primary duty is production work, i.e. sales.

The DOL issuance makes specific note that the DOL was not aware of any court holding that such employees have any other duty other than sales work as their primary duty.  Significantly, the issuance rescinds two DOL opinion letters that were more favorable to employers on the exemption issue.

This is a momentous development, but it has been “a long time coming” in my opinion.  Many courts have held these employees to be non-exempt and many large institutions, such as Bank of American NA, JP Morgan Chase & Co., Wells Fargo & Co. and Washington Mutual have been, hit and hit hard, with these kinds of actions.

 My advice is to conduct an internal audit and ensure that these employees (and other salaried) employees classified as exempt in fact are properly classified.

The DOL Interpretation letter is available at  www.dol.gov/WHD/opinion/adminIntprtnFLSA.htm

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A federal judge has dismissed a possible class/collective action concerning an alleged failure by Butterball, the giant poultry company, to pay workers for donning and doffing time.  I have written many times on this subject, but this case is different because the court found that the employees’ union had agreed to the policy of not compensating workers for this time. The case is entitled Salazar et al. v. Butterball, LLC and was filed in federal court in the U.S. District Court for the District of Colorado.

The workers are unionized and represented by the United Food and Commercial Workers, Local 7. The court ruled that, during negotiations, the union had waived or given away the right to be compensated for this time.  The employees in this lawsuit maintained that, notwithstanding this provision, it was illegal to force the workers to negotiate for something that they were already legally entitled to, i.e. compensation for donning and doffing time.

Significantly, the court noted that the union had filed a grievance over the nonpayment of donning and doffing time, but never channeled the grievance to arbitration.  Thus, the company also had the argument that the Union had abandoned the grievance and had “doubly” waived its right to press for compensation, i.e. through collective bargaining and the dropping of the grievance and failure to pursue it to arbitration.

The Company argued that since payment for donning and duffing time concerned wages, it was a so-called mandatory subject of bargaining; the union had never pursued the matter at the bargaining table and therefore the Company contended that these unionized workers could now not come after it through the back door.

The plaintiffs argued that if the federal judge adopted the magistrate judge’s findings, that would, “contrary to law, create a requirement that a union must use its right under federal law to be paid for all time worked as a bargaining chip in collective bargaining or lose that right.”  The court rejected that argument and did in fact adopt the magistrate’s findings.

The lesson to be learned---if an employer is unionized, it can, through collective bargaining, either “win” a provision that such time is non-compensable, or agree with the union that “some” modicum of such time is also compensable.
 

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Only a few weeks ago, I posted and commented upon the never-dying issue of whether Assistant Managers are exempt under the Fair Labor Standards Act and the threat of collective and class actions from these employees.  That time bomb has gone off again, this time with an Assistant Manager working for Big Lots filing a collective action on behalf of allegedly “hundreds” of similarly situated employees. The case is entitled Omiatek v. Big Lots, Inc. and was filed in federal court in the Western District of New York.

It is a typical Assistant Manager case.  The allegation is misclassification, charging that the employees are not exempt from overtime under the executive or administrative exemptions.  It charges (as they all do) that these employees spend the vast majority of their time unloading trucks, unloading boxes, cleaning the store and arranging merchandise.  The suit also charges that the employees do not exercise managerial authority, i.e. hiring, firing, disciplining employees, or making decisions on their compensation.

There is an interesting wrinkle to the case.  The granting of conditional certification (and the maintenance of that certification, as a class) hinges on a showing that they are similarly situated. To achieve this, the plaintiffs need to show that a common policy or practice applied to all potential members of the class.  If the defendants are successful in showing that individual assessment of each plaintiff is necessary, then the motion for class certification will fail.

In 2008, in another Assistant Manager lawsuit filed against this company, that is exactly what happened.  The court in that case (filed in federal court in Louisiana) determined that at least some of the plaintiffs had been properly classified as exempt and thus a class action was inappropriate. This is a distinct possibility when hundreds and hundreds of employees are involved.  There is a more than a good chance that some of them do, in fact, exercise the requisite managerial authority to fit within the exemptions.  It takes skillful deposing of the plaintiffs and perhaps expert reports/testimony as well, but it can, and, indeed, must be attempted by the defendants to defeat the motion for class certification.
 

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Five years ago, the Class Action Fair Act (“CAFA”) was enacted to deal with the onslaught of class action cases and to ensure, if I may say, fairness in the manner in which these cases were litigated but it appears that the ever active and creative plaintiffs bar is coming up with new ways to allow cases to remain in state court, rather than going to federal court where perhaps they feel or believe that the chances of winning are slimmer.  Defense counsel must adjust and adapt, quickly.

What some plaintiff counsel are doing is structuring and narrowing their Complaints so they can circumvent the jurisdictional diversity that the law mandates be applied. The fact is that CAFA was enacted to prevent abuse of the class action procedure/device.  The law eased the rules for establishing diversity jurisdiction so plaintiff lawyers could not engage in ting forum-shopping and lodge their suits in what they believed were states friendly to the plaintiff’s side. In this manner, defendants were able more facilely to remove cases to the federal courts.

The trick that has been discovered is to plead the case quite narrowly, in a real focused manner. For example, if the case is filed for less than one-hundred plaintiffs and damages of less than five million dollars are sought, the lawyers may be able to salvage keeping the case in state court, which they may perceive as a tactical advantage or may, in fact, be a tactical advantage.   In this analysis, the particular venue and/or the particular judge that preside over the case.

Often, class action cases settle. Rarely do they go to trial, given the enormous risks for the employer, i.e. fee-shifting, as well as for plaintiffs and their lawyers, who stand to realize nothing from a case if the class action motion is defeated or the case falls on the merits, e.g. employees found exempt, as a class.  Thus, there is much machination to get a case before the “right” judge who may broker. Whether with heavy hand or not, a settlement.

A recent, illustrative example. In a 2008 case involving Abbott Laboratories, a federal judge in the Eastern District of Tennessee ruled that the plaintiffs were trying to evade the dictates of CAFA by filing eleven class action Complaints, which mirrored each other, except that the period of time for which recovery was sought was different for each  “class.”   The various complaints defined the class period as various one-year periods ranging from 1990-2008.

However, each of the discrete Complaints included contentions relating to the entire reach of the charged conspiracy for all of the separate time periods in the ten years at issue.  The judge held that these artificial time demarcations were an attempt to ensure that the damages in each case were less than five million dollars, in order to circumvent CAFA. Essentially, he found that the plaintiffs were “gerrymandering” the cases to avoid the application of the CAFA.

 

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The US Department of Labor has resolved a legal action against a Texas company, Flour Enterprises Inc. for its failure to pay relief workers who participated in the Katrina clean up and rehabilitation efforts. The company will pay one million dollars to 154 workers. The case is entitled Solis v. Universal Project Mgmt., Inc., and was filed in the Southern District of Texas.

The DOL had also secured a default judgment against another Houston, Texas company for wages due workers which arose from the same investigation. That case is entitled Solis v. Universal Project Mgmt., Inc., and was filed in the same federal court..

Fluor, an engineering and construction firm, functioned as the General Contractor when it contracted with the Federal Emergency Management Agency after the devastation caused by Hurricane Katrina.  In turn, Fluor Enterprises subcontracted the work of inspecting trailers for the displaced people who were left homeless by the disaster to Universal Project Management.

The field investigation conducted by the DOL revealed that the companies did not pay time and one-half overtime, but rather (and against the law) paid only straight time for overtime hours.  A DOL official explained that “some employees involved in the inspection of trailers during the hurricane recovery worked up to 84 hours in a week without the required overtime compensation for hours worked over 40 in a workweek.”.

The Secretary of Labor observed that “workers who help rebuild our communities and secure the safety of local residents following natural disasters should be fairly and legally compensated for the work they perform.”

It is shameful that these employers should disregard such a basic tenet of wage-hour law, i.e. paying proper overtime, especially to workers who were likely not earning that high of an hourly wage to begin with. The mind boggles. I often take issue with Departments of Labor when defending/representing clients, but I applaud this use of the agency’s investigative and enforcement powers.
 

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The electronic giant, Best Buy, has requested that a judge approve a $900,000 settlement in a New York State wage-hour class action in which the plaintiffs sought payment for time worked “off-the-clock.”  That working time was the minutes spent going through security clearings at the end of the work day, assumedly to ensure that employees did not steal anything during their shifts.  The case is entitled Turner v. Best Buy Company, Inc.

Although the case was filed in state court, the employer had removed the case to federal court under the Class Action Fairness Act of 2005.  After going through a great deal of discovery, the parties decided to settle the action, although they maintained their respective positions.  The company maintained that it properly paid all employees for all time worked, while plaintiffs took the view that going through the security check was an employer instigated “activity” that required compensation.

Interestingly, and significantly, the employer has agreed to modify its operating procedures to allow all employees to remain on the clock until their manager allows them to leave the store.  Thus, although the employer denied any culpability, the remedial action it took suggests that it knew that there was an issue here.

The key to determining whether preliminary or postliminary activities are compensable is the element of employer compulsion or the lack thereof.  I equate this activity to the employer ordering a retail cashier to report ten minutes early to balance out the cash drawer or to stay ten minutes after the shift ends to do the same.  It is a safe bet that where employer ordering, or direction or compulsion of an activity related to the main job is involved, the activity is working time and compensable.  The other benchmark is how integrally related to the main job is the side activity.

I have often commented on these preliminary and postliminary issues.  They are a real danger to the employer because oftentimes, the employer may not even appreciate that this “little” activity or routine or inconvenience to employees is actually “work,” which can then lead to a single employee filing an action (as was done here) and everybody else coming on board.  The proactive approach is to analyze every non-exempt job and ascertain if there are preliminary or postliminary activities involved or related to it and then apply the above-referenced analysis and make the call on whether it is or is not working time.
 

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A federal judge has agreed to a settlement between the parties in a Fair Labor Standards Act (“FLSA”) collective action where a group of former employees sued the employer, a cement company, for overtime. The case, filed in federal court in Florida, is entitled Webster v. Cemex Inc.

Interestingly, the lead plaintiff, Timothy Webster, will recover only $2,600. Payments to the other class members have not been disclosed. The basis of the suit was that the Company paid the drivers by the delivery and did not pay overtime when the actual work hours exceeded forty (40).  The plaintiffs sought compensation for unpaid overtime for three years (seeking a willfulness finding) as well as liquidated damages and attorneys’ fees.

Although the Company asserted it had strong defenses against the claim, it settled this case, which had been consolidated with a second FLSA action against Cemex; that action was also lodged by drivers.

The issue comes back to exemption status.  If the drivers were non-exempt, they were entitled to overtime when they worked more than forty hours.  There is a computational formula built into the FLSA for determining how to compute overtime to workers paid by the delivery, or by the “stop” or on a commission basis, or a day rate, or any other form of compensation.  Ultimately, the employer must figure out the regular rate and then determine the overtime.

These drivers might or might not have fit within the motor carrier exemption, but likely no other exemption, certainly not the white collar exemptions as they were not paid a salary.  The lesson for employers is simple----absent an applicable exemption, all workers are entitled to overtime, regardless of the applicable computational methodology.
 

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Law firms are usually defending clients in wage-hour suits where the allegation is that the employee claims he/she has been misclassified as exempt when they are really not and are due overtime. But, law firms themselves must be diligent about properly classifying their own employees, especially when they categorize employees exempt under the administrative exemption. This is the lesson being learned by the so-called boutique intellectual property law firm of Turocy & Watson LLP, where a legal secretary has filed a class action, charging that the firm did not properly pay the “class” of secretaries overtime.

The case is docketed as Osolin v. Turocy & Watson, LLP et al filed in federal court in the Northern District of Ohio and charges a violation of the Fair Labor Standards Act.. The plaintiff believes there are approximately 30 legal secretaries in the class. All of these secretaries were paid a salary and were allegedly misclassified as exempt.

The complaint alleges that none of the plaintiffs did any managerial work or directed the work of employees, or had authority to hire and fire. Under that factual predicate, the plaintiffs would not fit within the executive exemption, but the firm will likely defend on the basis that they are administrative employees. As I have often warned, this is the most difficult exemption to prove and if the facts show that the secretaries performed secretarial, clerical work the majority of the time, this exemption will not be available as it will founder on the “discretion and independent judgment” element.

It is highly doubtful that the firm could show they were professional employees, even if the employees were given the moniker “paralegal,” as paralegals are explicitly deemed non-exempt under the federal regulations.

The burden of proof is always on the employer in an exemption case. This behooves employers, law firms or otherwise, to make reasoned, defensible exemption determinations and classifications at the time of hire, because it only takes a single plaintiff to start a world of trouble. In sum, these lawyers need a lawyer.
 

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I have posted a few times about Fair Labor Standards Act donning and doffing cases. The general rule is that donning and doffing is compensable if these preliminary and postliminary activities are integral to the performance of the employee’s primary job.

For a rule, there is always an exception. In a case entitled Johnson v. Koch Foods Inc., filed in the Eastern District of Tennessee, a federal judge has ruled that because the parties’ labor contract applicable to covering chicken processors working at a cut and kill plant explicitly excluded compensation for time spent donning and doffing certain sanitary and safety gear, the workers were not entitled to compensation for the time it took to put and remove the gear.

The judge analogized the putting on/taking off of the gear to “changing clothes,” which is not compensable under Section 203(o) of the Fair Labor Standards Act. The court did warn, however, that of a jury determined that such activities were integral and indispensable, they then could be compensable under the “continuous workday rule.”

This result seems anomalous because the workers were required to put on the protective gear prior to reporting to the production line, to begin their primary work, but they were only compensated for the time actually on the line.

There is a divergence in the federal Circuits as to what constitutes “clothes.” The Ninth Circuit has held that the “changing clothes” safe harbor applies only when the items at issue are clearly and unmistakably clothing, as is commonly understood. However, the Eleventh Circuit has held that the term applies to hairnets, gloves and hearing protection equipment. The US Department of Labor has issued an Opinion Letter concluding that the Section 203(o) definition of clothes “includes items worn on the body for covering, protection, or sanitation.”

This issue may ultimately have to be decided by the US Supreme Court. In the meantime, employers need to make assessments of the indispensability of the preliminary activity to the main job and start the analysis of compensability from that vantage point.
 

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Under the Fair Labor Standards Act, there is no law requiring employees receive a lunch period or break times. However, when the employer gives time for lunch, the employees must receive at least thirty minutes and the time must be uninterrupted. Put differently, the employees must be completely relieved from duty. When employees are not so relieved, they must then be compensated for that time, i.e. the half-hour, which all becomes “converted” into working time.

This is what the DOL found happened in this investigation, which ultimately included 4000 nurses. Some of the nurses answered phones while on lunch and others performed “some” duties. The result, however, is the same---all of the time is converted.

The hospitals also had an automatic deduction policy, by which one-half hour was automatically deducted from the nurses’ time for that day, on the assumption that the lunch was taken. Although the hospitals had a policy about not working during lunch (i.e. not carrying the hospital-provided phones during meal breaks) and also had a policy that allowed nurses to cancel the automatic deduction if they performed actual, productive work. The hospitals claimed that the nurses did not follow the policy. The result was a supervised settlement providing for 1.7 million dollars to be paid to the affected employees.

I have clients who have these automatic deduction systems for lunch time. As this makes clear, the automatic is not so automatic. There must still be supervisory oversight and intervention in issues where employees may have worked through lunch, to ensure that proper payment is made. The employer must have a system where employees can report that they worked through lunch and the employees, in my view, must be given training on the system, so all productive time is paid for and the DOL does not come knocking on the door.

In sum, a policy, a piece of paper, will not provide a defense to claims of uncompensated working time. More is required of the employer.
 

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In what is a troubling trend, an employee of Amazon.com Inc. has filed a FLSA collective action for unpaid overtime. The thrust of the allegations is that the rounding policy, which rounds to the nearest fifteen minutes, violates the Fair Labor Standards Act and deprives employees of compensation for alleged productive working time.   The case is docketed as Austin v. Amazon.com, Inc.

The suit is particularly dangerous because it evidently seeks a nationwide class action of all Amazon “warehouse associates” who were employed over the past three years. There are facilities in several states, such as Arizona, Delaware and Texas. If certified as a class, there could possibly be more than 21,000 employees involved. The total exposure on such an action could run to the millions of dollars.

Apparently, the Company forbids employees from punching in early; this creates an anomaly because those employees who get to work “first” get paid for their entire shift, while those who are compelled to wait in line to punch in and do so eight or nine minutes after start time, find their time rounded up to fifteen minutes after the start time and start being paid only from that point on. Under law, if employees punch in and immediately begin productive work, they must be paid from that minute on, without the benefit of rounding.

The situation is complicated due to the advent of electronic timekeeping, including so-called “smart clocks,” which do not allow employees to punch in before their start times. The plaintiff’s attorney called attention to this issue and urged that the electronic technology in fact allowed for payment to the minute, so there was no reason not to properly pay the employees.  He also conceded that some employees could benefit from the policy by deriving some extra minutes from the rounding system, but stressed that the majority of employees would lose money from the rounding procedure.

If the allegations are true, then the actual impact of the policy is that workers work “off the clock,” depriving them of straight time and overtime wages. I believe this is a real problem in the industrial world and is complicated by the advanced technology of timekeeping. Employees must be paid for all productive work and a timekeeping system cannot act to deprive the employees, of those wages. Employers should institute appropriate policies and, more importantly, must exercise supervisory and managerial oversight to ensure that employees are paid for all hours actually worked.

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A federal judge has ruled that a dispatcher, who was suing as the named plaintiff in a FLSA collective action seeking overtime, was not able to prove that he was “similarly situated” to other employees and this the judge refused to grant even the conditional certification necessary to keep the case going.  The case is entitled Landry v Peter Pan Bus Lines and is being litigated in the District of Massachusetts.

Although dismissed, the case raises the specter of the exempt status of dispatchers in the trucking and bus industry.  I believe this is a pervasive issue/problem for this industry, as many trucking and bus employers classify their dispatchers as exempt from overtime, believing that they are part of “management.”

Although, in a real-world sense, these important employees are part of the management “team,” under the FLSA exemption regulations, they must meet certain criteria. If they do not meet the criteria, both work duties and salary minimums, they are non-exempt and overtime eligible, notwithstanding their importance to the transportation operations.

The plaintiff had alleged that his job did not require the exercise of independent judgment, which is the hallmark of the administrative exemption, nor that he performed any “managerial responsibilities,” which impacts upon both the executive and administrative exemptions.  These theories were never tested, as the plaintiff sought to secure class certification too early, before any discovery had been taken. If the case was re-filed with another lead plaintiff and the plaintiff’s lawyers were a littler more patient, i.e. allowing for a period of discovery, the case might have turned out differently.

Employers in the transportation industry should pay special attention to the job duties of their dispatchers.  If the employer concludes that these employees are currently non-exempt, it is possible to enhance their job duties so that they evolve into exempt employees.   Another possibility is that the dispatchers may fit within the motor carrier exemption, but they must affect safety for this exemption, rather than simply dispatch vehicles.

In any event, the time to analyze the dispatcher exemption issue is now, before the threat of a lawsuit looms.
 

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The federal motor carrier exemption from overtime, 29 USC 213(b)(1), which applies to safety workers (e.g. drivers) engaged in interstate commerce, has been found to exempt Ray’s Trash Service, Inc. drivers from their right to overtime under the Fair Labor Standards Act even though the drivers do not cross state lines. They were held to nevertheless be in the stream of interstate commerce. The case is entitled Craft v. Rays, LLC which had been filed in the U.S. District Court for the Southern District of Indiana.

The judge held that the transportation of recyclables across state lines sufficed to bring the drivers into the “practical continuity” of interstate commerce. As the judge noted, “although plaintiffs never transported the recyclables across state lines, the court finds that their transportation was part of a practical continuity of movement across state lines.”

The drivers filed a class action in May 2008, alleging their pay was improperly docked, but the main thrust of their class action was a claim for overtime. The employees claimed that the interstate commerce ended when the movement of the goods was interrupted and because the employer did not have the “fixed and persisting intent” to ship the goods out of state. That intent is necessary to show that interstate commerce still continues despite the fact that the driver drives only within a State.

The judge rejected those arguments, holding that the company did not just have a speculative intention to ship out of state, as more than half of the recyclables were, in fact, sent to out-of-state recipients. The court held that the activities the drivers engaged in – included baling and consolidating recyclables, were no more than “repackaging,” which, under the law, did not interrupt the flow of interstate commerce.

One commentator has suggested that this ruling will have special relevance today, for FLSA motor carrier overtime cases, as all of us are living and working in a “green economy” in which numerous recyclables will be shipped out of state. From my perspective, it means that a lot of drivers will not be seeing or getting any green.
 

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In Chen et al. v. Domino's Pizza Inc. et al., the U.S. District Court for the District of New Jersey dismissed Domino's Pizza Inc. from a proposed class action. The action alleged that the company, and a select number of New Jersey franchisees, failed to pay delivery drivers proper overtime wages in violation of the Fair Labor Standards Act and the New Jersey Wage and Hour Laws. 

Specifically, the plaintiffs asserted that as delivery drivers, they regularly worked 60 or more hours per week without any regular meal or break periods, and that they were required to clock in several hours after they began work. The complaint also alleged the plaintiffs were terminated after they complained about the alleged overtime denial.

The court found, however, that the plaintiffs failed to set forth sufficient facts to show an employment relationship existed between them and Domino’s, and only made a “conclusory statement that Domino's is an employer 'within the meaning of 29 U.S.C. § 203(d) and N.J. Stat. Ann. § 34:11-56a1(g).” In dismissing the company from the action, the court reasoned that the plaintiffs were employees of the franchisee and not the corporation. The plaintiffs also attempted to set forth a joint employer argument, but the court struck down this argument on the grounds that these allegations were not in the complaint. 

This decision is a win for employers. Indeed, it shows would-be plaintiffs that a mere conclusory statement regarding the employer status of a company will be insufficient to sustain a claim in court. 

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In Chen et al. v. Domino's Pizza Inc. et al., the U.S. District Court for the District of New Jersey dismissed Domino's Pizza Inc. from a proposed class action. The action alleged that the company, and a select number of New Jersey franchisees, failed to pay delivery drivers proper overtime wages in violation of the Fair Labor Standards Act and the New Jersey Wage and Hour Laws. 

Specifically, the plaintiffs asserted that as delivery drivers, they regularly worked 60 or more hours per week without any regular meal or break periods, and that they were required to clock in several hours after they began work. The complaint also alleged the plaintiffs were terminated after they complained about the alleged overtime denial.

The court found, however, that the plaintiffs failed to set forth sufficient facts to show an employment relationship existed between them and Domino’s, and only made a “conclusory statement that Domino's is an employer 'within the meaning of 29 U.S.C. § 203(d) and N.J. Stat. Ann. § 34:11-56a1(g).” In dismissing the company from the action, the court reasoned that the plaintiffs were employees of the franchisee and not the corporation. The plaintiffs also attempted to set forth a joint employer argument, but the court struck down this argument on the grounds that these allegations were not in the complaint. 

This decision is a win for employers. Indeed, it shows would-be plaintiffs that a mere conclusory statement regarding the employer status of a company will be insufficient to sustain a claim in court. 

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In Chen et al. v. Domino's Pizza Inc. et al., the U.S. District Court for the District of New Jersey dismissed Domino's Pizza Inc. from a proposed class action. The action alleged that the company, and a select number of New Jersey franchisees, failed to pay delivery drivers proper overtime wages in violation of the Fair Labor Standards Act and the New Jersey Wage and Hour Laws. 

Specifically, the plaintiffs asserted that as delivery drivers, they regularly worked 60 or more hours per week without any regular meal or break periods, and that they were required to clock in several hours after they began work. The complaint also alleged the plaintiffs were terminated after they complained about the alleged overtime denial.

The court found, however, that the plaintiffs failed to set forth sufficient facts to show an employment relationship existed between them and Domino’s, and only made a “conclusory statement that Domino's is an employer 'within the meaning of 29 U.S.C. § 203(d) and N.J. Stat. Ann. § 34:11-56a1(g).” In dismissing the company from the action, the court reasoned that the plaintiffs were employees of the franchisee and not the corporation. The plaintiffs also attempted to set forth a joint employer argument, but the court struck down this argument on the grounds that these allegations were not in the complaint. 

This decision is a win for employers. Indeed, it shows would-be plaintiffs that a mere conclusory statement regarding the employer status of a company will be insufficient to sustain a claim in court. 

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In a case entitled Clifton Sandifer et al. v. U.S. Steel Corp. a federal judge has cut out some claims from a work time class action suit, but has allowed one major allegation to remain in the case. That cause of action involves whether the employees should be paid for the time spent in walking from their locker room to their work stations.

The case is in federal court in Indiana; the plaintiffs filed suit in December 2007. Unlike many class actions I have commented upon, this was not a misclassification lawsuit, but rather a work time case. The plaintiffs sought compensation for time spent donning, doffing, walking, showering and laundering personal clothing in excess of the 40-hour workweek. The employees allege that these “work” activities consumed 9-10 hours per week.

The judge threw out the portions of the case pertaining to the donning and doffing of protective clothing, agreeing with US Steel that the compensability of these activities was addressed in the parties’ collective bargaining agreement. The court also found that showering was not required by the company and therefore was a postliminary (i.e. after work) activity for which no compensation was required.

Similarly, even though instructions were provided on how to launder clothing worn under work gear, transporting and laundering clothing was not required by the Company and thus it was not compensable. The judge kept the walking to work station claim, rejecting the company argument that these were non-compensable preliminary and postliminary work. The judge also rejected the de minimis doctrine argument, finding that walking times varied widely throughout the plant.

Judge Miller also did not accept the argument that these claims were preempted under the National Labor Relations Act as they ostensibly involved interpretations of the collective bargaining agreement, rather than statutory violations of the Fair Labor Standards Act.
 

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In Bailey et al. v. Border Foods Inc., the U.S. District Court for the District of Minnesota dismissed with prejudice a proposed collective and class action against a Pizza Hut franchisee after finding that the lead plaintiffs failed to adequately plead that their wages fell below the required minimum wage. The plaintiffs, former delivery drivers for Pizza Hut, accused the franchise operator of violating the federal Fair Labor Standards Act and Minnesota Fair Labor Standards Act by failing to pay minimum wages, and making unlawful wage deductions and wrongfully retaining employee gratuities in violation of the state law.

The Court also dismissed without prejudice the state claims against the franchisees, noting that once the federal claims were dismissed, he no longer had jurisdiction over the case. In doing so, he declined to exercise supplemental jurisdiction over the state claims.

In making its decision, the Court stated “[i]n this case, plaintiffs have failed to identify their hourly pay rates, the amount of their per-delivery reimbursements, the amounts generally expended in delivering pizzas, or any facts that would permit the court to infer that plaintiffs actually received less than minimum wage.”   Specifically, the complaint merely alleged that the plaintiffs were “systematically deprived” of minimum wage. Further, on the plaintiff’s consent forms, they wrote they did not “believe” they were paid enough to cover expenses, which indicated that they were speculating as to whether their pay actually fell below minimum wage.

In deciding to dismiss the federal claims with prejudice, the Court noted that the plaintiffs were given fair notice of their pleading deficiencies but did not request leave to replead.

This decision is a win for employers. Indeed, it shows would-be plaintiffs that a mere “belief” of an FLSA violation will not be sufficient to sustain a claim in court. 

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In an unusual move, Rite Aid Corp. is seeking dismissal of an overtime class action filed by a former drugstore employee, asserting it is identical to another class action that had been previously filed and is still working its way through the courts. The case is docketed as Georgianna Gordon v. Rite Aid Corp.

The Company urges that, under federal law, the action filed first takes precedence over this action, which was recently filed in the U.S. Southern District of New York. The earlier action, entitled Indergit v. Rite Aid Corp. and Rite Aid of New York Inc. was filed some ten months before this current action.

As the Indergit action was filed before this case, and as there is considerable identity of the issues and parties, the Company urges that the Court apply the first-filed ruled. This seems somewhat self-evident, as the issues presented in this case are being actively litigated in Indergit. If the federal judge does not dismiss the action, the Company will then seek a stay pending resolution of the earlier case.

Ms. Gordon worked as an Assistant Manager and Manager at Rite Aid from July 2007-June 2009. She alleges that she primarily did non-exempt work, such as stocking shelves. She admits that she opened/closed the store and responded to and resolved customer complaints, but denies that she ever hired or scheduled employees, which would clearly be exempt work. She claims she worked between 50-60 hours per week and earned a salary of approximately $800 per week.

She also alleges that she did not exercise independent judgment. This is an odd allegation, especially under the Fair Labor Standards Act, as the “discretion and independent judgment” component of that exemption test has been deleted under the revised regulations of August 2004.

This is not the first case of overtime “flu” to hit this Company. In July 2009, a class of Assistant Managers in Ohio sued Rite Aid on a misclassification theory. To further complicate matters, similar misclassification lawsuits have been lodged against Rite Aid competitors CVS Caremark Corp. and Walgreen Co.

These Assistant Manager cases are extremely tough to defend, because it is difficult to prove that management remains the employees’ “primary duty” even when they are working the cash register, stocking shelves or waiting on customers. I believe, and have advised numerous clients, the best and most prudent thing to do is to treat these folks as non-exempt from the commencement of their employment, build the overtime into their compensation, assuming they have to work 48-50 hours every week and then never worry about overtime lawsuits. Never worry about overtime lawsuits. Sorry—I’m being redundant.

 

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In a ground-breaking decision, the Ninth Circuit Court of Appeals has set a path down for defendant-employers in Fair Labor Standards Act (“FLSA”) class actions that is breathtaking in its simplicity and conclusive effect. In Vinole v. Countrywide Home Loans, the Court ruled that an employer need not wait until the close of discovery (which is very expensive and time-consuming) to file a motion seeking to deny class certification before the plaintiff moves to have the class certified.

The plaintiffs, External Home Loan Consultants, alleged that they had been misclassified as exempt outside sales employees, resulting in an illegal failure to pay them overtime. The Company, relying on California Wage Orders and the language in the FLSA regulations, had in fact classified these workers as exempt as outside sales people.

Before the pretrial motion deadline and discovery deadlines ensued, the Company filed a motion to deny class certification under Federal Rule of Civil Procedure 23. The plaintiffs opposed the motion, claiming that it was premature because they had not yet filed their class certification motion and further contending that class certification was appropriate, based on the evidence that they had adduced.

In affirming the lower federal court’s denial of class certification, the Ninth Circuit held that too much individual analysis of what the employees did, e.g. outside sales work or lack thereof, was required. As I have written about many times, individuality is the death knell of a class action, as plaintiffs must prove commonality, i.e. a common policy, plan or practice applicable to the entire class.

This can be the start of a trend that might push back on the multiplicity and veritable explosion of class actions. In giving employers a weapon to use offensively, the Ninth Circuit (usually, a fairly liberal, pro-employee Circuit) has signaled that, as Bob Dylan wrote four decades ago, the “times, they are a changin’”
 

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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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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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The reach of wage hour laws extends even into topless go-go bars, as a recent case has, perhaps humorously, demonstrated. In a case entitled Chaves v. King Arthur’s Lounge Inc. a Massachusetts court has ruled that so-called exotic dancers who performed in a local strip club were employees, not independent contractors. Thus, they were due, at least, the state minimum wages and overtime compensation from their employer.

The nightclub, King Arthur’s Lounge, had contended that the dancers were not employees and thus not entitled to minimum wage and overtime. The state court judge not only rejected this argument, she also certified the lawsuit as a class action.

To add insult to injury, not only did the club not pay any compensation to the dancers, it also actually charged each of the dancers the sum of $35 per night for the “opportunity” to dance and earn tips from patrons. The employer defended by claiming that its primary business was selling food and liquor; the judge noted that the employer sought to posit its use of the dancers as “a form of entertainment it provides for its patrons, akin to the televisions and pool tables in a sports bar.”

The judge quickly rejected that attempt, ruling that “a court would need to be blind to human instinct to decide that live nude entertainment was equivalent to the wallpaper of routinely-televised matches, games, tournaments and sports talk.” She also concluded that “the dancers were an integral part of the company’s business and were therefore more likely to be employees than independent contractors.” The judge continued, holding that “in an age of electronic and Internet access to a wide variety of adult media, exotic dancing is unlikely to offer a commercial opportunity – over the long term—that would rise to an independently established trade for occupation.”

This case highlights the fact that every employer must carefully evaluate the circumstances of their engagement of individuals to perform services for them. If the services are, as herein, an integral component of the employer’s business, or if too much control is exerted by the employer, or the individual does not perform these services for anyone else, then that individual is likely an employee, not an independent contractor.

The fact that they may dance around a pole does not change this analysis.
 

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In a relatively rare occurrence, but one of special interest to financial services employers a federal judge has rejected an effort by a putative class of Citibank NA employees whose job duties focused on the recruiting of businesses to participate in the company’s Bank at Work program. The workers claimed, as usual in these cases, that they were misclassified as exempt.

In a crucial ruling, one that might provide a blueprint for employer defenses of these cases, the court ruled that individual examinations of the duties of many, if not all, of the class members would be required. As “individuality” is the antithesis of a class action, which is founded on commonality, e.g. a common policy or practice, the motion for class certification was denied.

In this case, docketed as Miranda v Citibank NA, Judge John F. Walter of the U.S. District Court for the Central District of California concluded there were numerous inconsistencies in the motion, which sought to include approximately 100 workers. The job duties of these employees was to locate and then pitch businesses whose employees could possibly seek to utilize/purchase Citibank services. The employees had the same companywide job description, which included recruiting new accounts.

The plaintiff had argued that the administrative exemption did not apply because she did not utilize discretion and independent judgment, which is often the downfall for employers to claim the administrative exemption. The plaintiff argued that all she (and the others) did was “a series of routinized tasks.”

Under well-established precedent, the court was required to conduct an individual specific study of what each employee did and whether the amount of exempt work performed by each one. This meant, especially, the court needed to determine how much discretion each employee used on the job.

The judge refused to accept blanket, umbrella like allegations that common issues predominated and found that the plaintiff had failed to show the existence of a common policy. To the contrary, the affidavits submitted by both sides demonstrated that the amount of time these employees spent off-site “varied dramatically from one individual to the next.” Thus, individual analysis of whether each of the one-hundred employees qualified for the outside sales exemption was also necessary.

The lesson for employers defending these cases is clear—attack the “commonality” contentions and argue that individual scrutiny is called for. If accepted, that defense argument dooms a class action.
 

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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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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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In a case entitled Sexton v. Franklin First Financial, Ltd, a federal judge has granted conditional certification to a FLSA collective action alleging Franklin First Financial Ltd. failed to pay overtime to a class of loan officers. This is the latest (and surely not the last) of a host of class actions filed under federal and state wage-hour laws, targeted at securing overtime for employees allegedly misclassified as exempt.

The suit emanated from the Company’s West Hempstead, New York office. The primary basis of the suit is the overtime-exemption-misclassification issue. The employees involved in the suit sell residential mortgage loans. In an interesting twist, the Company allegedly paid loan officers on a commission-basis and were not paid unless they made a sale. The allegations are that these commissions did not meet the required minimum of at least $455 per week. This also raises the issue of whether the employees were paid a “salary,” which is an essential component of fitting within the exemption.

The federal judge determined that there was sufficient similarity between the single named plaintiff and others who might opt into the lawsuit. Significantly, in these early steps of class certification, the plaintiff must only make a “modest” showing of pleadings and evidence, a showing that practiced plaintiff-side attorneys are all too familiar with. If evidence of a common policy or practice is shown, the class receives conditional certification, followed by additional discovery and motions and possibly mediation.

The estimate is that there are hundreds of potential loan officers, scattered throughout several branches on Long Island.. Although the court has initially excluded outside loan officers from the suit, if subsequent discovery shows that they are also similarly situated to the inside loan officers, they will be added as well.

If this does not settle the case, or the employer wants to roll the dice on the exemption issue, then a trial ultimately ensues. Before that stage, however, a very careful analysis has to be done of whether there is a viable exemption defense. Ideally, this should be done way before a lawsuit or possible lawsuit is even on the horizon. The stakes in these cases are much too high to wait until a lawsuit explodes and thrusts the entire exemption issue into the forefront. Internal auditing and scrutiny of all salaried positions to make reasoned determinations of exempt status is what is needed, sooner, not later.
 

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In a proposed overtime class action against mortgage lender Ocwen Loan Servicing LLC, the United States District Court for the Southern District of Florida denied the plaintiffs' request to conditionally certify a lawsuit as a collective action and notify potential class members. The court denied the request on the grounds that the plaintiffs failed to sufficiently show that other similarly situated employees exist.

The suit accused the residential mortgage loan provider of failing to pay its inside sales representatives overtime wages in violation of the federal Fair Labor Standards Act.

According to plaintiffs, the case should have been certified because three opt-in plaintiffs had demonstrated that their job requirements were similar and that they were subject to similar pay provisions and they had indicated that other individuals might also want to opt-in on the action.

The court disagreed with this reasoning. Indeed, the court found that the affidavits filed by two of the opt-in plaintiffs were too vague and too speculative to show that other similarly situated employees actually existed. The affidavits were vague in that no individuals were named and their statements were noncommittal. The court found this to be insufficient. Judge Zloch, who rendered the decision, stated “it gives the court nothing to make a finding upon but the fact that plaintiffs are aware of others. Who these others are, whether they are similarly situated and whether they are actually interested in joining in this suit is all left to guess-work.” If other similarly situated employees did exist but were too scared to come forward, the plaintiffs' counsel could have ensured their names were not disclosed through “a myriad of different devices,” such as filing under seal or asking for a protective order, Judge Zloch said.

The decision reflects the court's aggravation with these cases that are brought so frequently as attempted class actions without evidence, or indication from other employees, that they have also suffered they same. 

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A federal judge in California has certified five sub-classes of drivers alleging FedEx Corp. bilked them of pay for missed meal periods, off-the-clock work and working split shifts. The Judge found that common issues, a requirement of class-action certification, predominated in the five sub-classes of workers.

Three of the sub-classes relate to meal periods. The first sub-class consists of workers not paid for meal periods lasting less than 30 minutes. The second sub-class consists of workers alleging they were not’t paid for missed or untimely meal periods between April 14, 2006, and March 25, 2007. The third meal-period sub-class, meanwhile, consists of drivers alleging FedEx did not’t pay them for meal breaks taken after four and a half hours of work but before five and a half hours of work between March 6, 2007, and the present. The fourth sub-class approved by the judge alleges they never received the extra hour of pay that was due to them for working a split shift. The final approved sub-class consists of workers claiming they performed approved preliminary and postliminary work (i.e. before and after the shift) without pay.

The FedEx drivers’ meal claims relate to a California statute currently in dispute. The law requires employers who fail to provide a meal or rest period to pay the worker for an additional hour of work at their regular rate of pay. California’s wage law also requires employers who fail to provide meal or rest breaks in accordance with certain procedures – such as giving employees a 30-minute meal period for every five hours worked – also must compensate workers for their time.

Two California courts of appeal have ruled that “provide” only means employers must make meal breaks available and not ensure workers take them. However, the California Supreme Court has recently granted review of the two cases.

The point is that one large class can be broken down into component parts. In such an instance, workers are deemed similarly situated to other workers within the overall class, but need be similar to all of the workers in the class.
 

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As I have written, employees need not file class actions in a court in order to band together to seek overtime monies. Arbitration is a distinct possibility. In the recent case of Franco v Athens Disposal Company, Inc., a California appeals court has held that a trial court erred when it held that a class-action waiver in a company’s arbitration agreement was enforceable. The Company had initially defended by asserting that the employee, a truck driver, was exempt from overtime under the motor carrier exemption, but the Court ruled that this was also for the arbitrator to decide.

The trial court also misinterpreted a decision of the California Supreme Court finding that a class-arbitration waiver was unconscionable when prohibition of relief for all of the putative class members would undermine vindication of the employees’ statutory rights to overtime, which they could not legally waive. The trial court had held that this holding did not apply to a driver’s state-law claims against his employer for not providing meal and rest periods or pay additional compensation for missed meal/rest periods.

The employer had contended the meal and rest period “rights” were subject to waiver. The appeals court held that, as state law required employers to comply with provisions of state Wage Orders, which mandated meal and rest breaks and since the law stated that no provision of law could be set aside by a private agreement, the statutory right to meal and rest periods could not be waived.

In sum, the court ruled that the class-arbitration waiver in the company’s arbitration agreement was unenforceable, where the driver (and other employees) alleged violations of California law regarding meal and rest periods. The court believed that class arbitration would be a more effective way of vindicating the employees’ statutory rights than individual arbitrations, given that the size of the potential individual recovery was small. Finally, the court held that a possible award of attorneys’ fees would not provide a sufficient incentive for an attorney to take an individual case, especially since the allegation was that all hourly employees were subject to the same unlawful conduct.

The lesson is that simply because an employer builds into arbitration agreements (whether found in employee handbooks or freestanding) a waiver of wage-hour (or other) class actions, there is a good chance they will be found unenforceable.
 

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Not every allegation of FLSA violation or class action must weave its way through the courts for a resolution. Union members who feel aggrieved may challenge alleged improper pay practices through arbitration. In these settings, the Arbitrator will apply and incorporate federal laws, such as the FLSA, in order to render a decision on the alleged labor contract violations.

That is exactly what just happened in National Council of EEOC Locals No 216, AFGE and Equal Employment Opportunity Commission, Case No. 0761012-00226, in which Arbitrator Steven Wolf ruled that the agency violated the FLSA rules on payment of overtime. The Arbitrator also found that the violations were willful and also that the grievants were entitle to liquidated (i.e. double) damages. These last two findings represent a direct application of FLSA statutory remedies to the arbitration forum.

What prompted this case was the agency’s reclassification of many individuals to exempt status, following the recommendations of an outside consultant. When these employees then worked overtime, the agency did not give them the choice between cash overtime and compensatory time, as it was obligated to do.

Another issue was the ostensible failure of the employees to work overtime that was “authorized.” The Arbitrator resolved this by applying the long-established maxim that work that is “suffered or permitted” to be done is work that must then be compensated, whether or not the employees had formalized permission. That is what happened here.

There are many ways for a plaintiff or group of plaintiffs to come after an employer and it need not be in a court proceeding. These working time cases are particularly perilous. They become more dangerous when there is a triggering event, such as a reclassification of employees from non-exempt to exempt so people that used to receive overtime are, all of a sudden, not receiving it.

 

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Most of my postings about class actions have concerned white collar, service or retail sales occupations and whether employees fit within certain FLSA exemptions. A few have concerned working time (e.g. donning and doffing) in factories. None has concerned so exotic an occupation as loggers, or, as the TV show likes to label them, “Ax Men.”

A FLSA class action lawsuit, entitled Maudlin v. Johnny Kynard Logging, Inc., has been filed by a logger who claims he always worked from about 5AM-6PM, without being paid the required premium rate (i.e. time and one-half) for overtime hours. In an important victory for him and other putative plaintiffs, his case has been granted collective action certification, which means that more plaintiffs will throw their axes in with this gentleman and seek overtime.

Judge Kristi K. DuBose of the U.S. District Court for the Southern District of Alabama granted the plaintiff’s motion for class certification, as well as an Order facilitating notice to other loggers who may wish to join the suit. Evidently, according to the plaintiff’s attorney, there have been a number of suits filed against logging companies and this industry is rife for other overtime suits.

The attorney asserted that failing to pay loggers proper overtime is “somewhat of a common practice” among logging companies. For example, in this case, it is claimed that the employees were all paid on a flat per-day or per-week basis that did not account for the actual number of hours the employees worked, with an appropriate overtime calculation then made. Such a calculation would be based on the total remuneration received (i.e. adding all of the day rate monies) divided by the total hours worked in the week to arrive at a regular rate. Half-time overtime would then computed on that week’s regular rate.

The named plaintiff and the opt-in plaintiffs in this action worked as loggers cutting, gathering and delivering timber. The lesson here is that no occupation, business or industry is immune from these kinds of overtime suits, albeit based on different theories.

If a tree falls in the forest and no one is there, does it make a sound? If the tree is felled by a logger not being paid proper overtime, it will indeed---a big one.
 

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Sales representatives of Novartis Pharmaceutical Corporation who brought a class action have been determined to be exempt employees under the Fair Labor Standards Act, thus bringing an abrupt end (for the plaintiffs) to the litigation. Federal district court Judge Paul Crotty, sitting in the Southern District of New York, has ruled that these employees were “outside salespersons” and exempt under that provision. Then (although it did not have to reach the issue), the court also found that they were “administrative” employees, also exempt from overtime requirements.

The representatives argued that they did not make “sales” as that term is defined under the law. Note that there is a very technical, precise meaning given to the term “sales.” The judge rejected that argument, finding that they made sales by “obtaining commitments” to prescribe Company drugs from the physicians that they solicited. The judge noted that the workers were credited with sales and were compensated by incentive payments. Thus, under the FLSA (and New York State law), they were exempt outside salespersons.

The representatives contended they were not administrative employees because they lacked the requisite discretion and independent judgment. The judge rejected that as well, finding that their work directly related to general business operations and, in contrast to the contention, that the representatives did utilize discretion and independent judgment, with regard to matters of significance, the FLSA requirement.

There are 500 potential plaintiffs. They have vowed to appeal.

This is a tremendous victory for this employer and for employers in general. It shows that the administrative exemption can be successfully argued, as applicable to a class of workers. It demonstrates that perhaps the courts are viewing the discretion/independent judgment component of the exemption test with some real-world flexibility. That is precisely the necessary prescription.
 

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A former Assistant Manager at a Starbucks has filed a collective action under the Fair Labor Standards Act (“FLSA”). The suit is for overtime on behalf of himself and a class of Assistant Managers who worked more than 40 hours per week but were not paid overtime compensation. The plaintiffs assert that they were compelled to perform non-exempt duties a disproportionate amount of their work day and this amount of rank-and-file work destroyed the exemption.

Starbucks is no stranger to FLSA class actions by Assistant Managers. In March 2008, the Company settled with 356 Store Managers in several States, who accused the company of compelling them to work off the clock. This was ironic because, as far back as 2002, Starbucks had changed the compensation of Assistant Managers to an hourly basis, eliminating the exemption controversy, but then violated the law in another way. Due to the tightness of labor budgets, the Managers encouraged/pressured the Assistant Managers to work off the clock. In other words, the Company traded one headache (i.e. the exemption dilemma) for another (i.e. uncompensated off the clock work).

Another case, which settled in August 2008, also was based on a theory that too much non-exempt work was performed, undermining the exemption.

The Assistant Manager classification has always been problematic from an FLSA exemption perspective. These employees must be endowed with some actual/real authority relating to hiring and firing as well as other employee terms and condition or the employer will be an easy target for a class action suit. Moreover, they must supervise and manage the majority of the time. This becomes a fine line that often gets crossed in the hectic world of store operations, where the job has to get done.

Additionally, and this is the lesson learned from this case, in industries that historically utilize tight labor budgets (e.g. fast food franchises), the pressure to stay within budget must be resisted if the “price” paid is Assistant Managers (or other employees) are forced to work off-the-clock. This will only come back around and leave a bitter taste.
 

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I have often observed that when a class is certified in a FLSA action, it is very difficult to cut that class down, or, in legalese, to de-certify that class. In a recent FLSA collective action involving CVS pharmacy technicians, entitled King v. CVS Caremark Corp, Dkt No. 1:07-cv-21824-dig, brought in federal court in Florida, that is precisely what has occurred. Now, only two plaintiffs remain in a case in which they alleged that CVS Caremark Corp. did not pay them for overtime and meal breaks that they could not take due to the demands of their job. The federal court has granted summary judgment for the employer.

The was filed in July 2007 by pharmacy technicians who alleged CVS failed to compensate them for overtime, the lunch breaks, and preliminary and postliminary duties, that is, job functions which were performed before they began their primary work functions and functions allegedly performed after the “normal” workday ended. The plaintiffs sought not only compensatory damages, but also interest, liquidated damages and their attorney fees. In December 2007, the class was granted conditional certification.

In order to sustain a collective action, the employees must be subject to a common policy, practice or design under which they work. The technicians contended that their action was proper because there was a countrywide timekeeping and payroll system that applied to all of them. They contended that the timekeeping system was fundamentally flawed because it did not allow employees to accurately record their start and end times, which in turn acted to deprive them of overtime compensation. The federal judge disagreed. He concluded that the class must be decertified because there was no uniform timekeeping system and that individual managers used various and different methods for keeping track of employee time.

The judge found a number of variables that affected the processing of time records by store managers in the far-flung CVS “empire” and noted that “a trier of fact would need to engage in an individual assessment of the procedures instituted at each store and the particular allegations of what occurred after each plaintiff accessed the [payroll] system.” Thus, the collective action was dismissed, although the plaintiffs who had sought to join the action by opting in could purse individual claims.

This is a rarity. Usually, once a class is certified, it stays certified. De-certification is a difficult goal to achieve, but, as here, if proof can be adduced that there are individual differences in the personnel actions or policies that affect the putative class members, an employer can succeed. Hard to do, yes. Impossible. No! The employer here should be given significant credit for achieving what is a difficult task, but when the facts do not bear out a pattern or practice de-certification is what should happen.
 

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In a recent case entitled Gonzalez v. Tanimura & Antle Inc., a federal court in Arizona ruled that farm workers who waited in their employer’s parking lot until the ice melted from the crops they were going to pick were “engaged to be waiting,” rather than “waiting to be engaged” and therefore entitled to compensation for the time they spent waiting.

The court ruled that the named plaintiff and fifty-five other should have been paid for the time they spent waiting in the parking lot. The fact that they could buy coffee, or play cards or even play soccer while they waited for the crops to de-ice did not turn the time into non-compensable time. The judge stated that these “personal activities” were more like time-filling activities, rather than personal pursuits that the workers would engage in if they had not gone to the parking lot to commence their work for the day.

The workers picked lettuce and broccoli. The majority of them lived in Mexico and walked about an hour to arrive at the parking lot. From that meeting place, they rode on company-provided buses to the fields, some 10-40 miles away. Every day during the harvest season (November-March), the workers were told when to report to the parking lot on the next day. If frost was predicted, the workers were told to report later, as the harvest could not commence until the ice melted. On occasion, ice was found on the crops after the workers got to the parking lot. Thus, they were unable to commence work and they stayed in the parking lot, although some bought coffee, or played cards, dice, or soccer. The plaintiffs alleged that they were required to wait for their employer’s convenience and benefit, turning their waiting time into compensable time.

The employer defended by contending that it did not owe any monies because the ice in the fields was an “act of God.” The court rejected this defense, concluding that “the ice actually was foreseeable because it happened quite often in Yuma during the winter months.” The court noted that the supervisors would set later start times for “the next morning based on their belief that ice would form” and that “because of the predictability of the ice, defendant could have set a later start time during the winter months.

This case raises the difficult and gray issue of what constitutes working time. Again, as in so many of these instances, it is the notion of employer compulsion or direction that is at the heart of the matter. The workers were directed to report by the employer at a certain time to a certain place. That conditions outside their (or anyone’s) control delayed the commencement of their “real” work did not render their waiting time non-compensable.

Engaged to be waiting to waiting to be engaged? It depends.
 

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A collective/class action lawsuit against Merrill Lynch, which is just getting under way in the US District Court for the Southern District of New York (sitting in Manhattan) has been temporarily placed in limbo while the litigants wait for the decision of an Oregon court, which may approve a $43.5 million settlement in a similar type of a case.

The potential settlement could resolve a number of similar cases involving allegations of misclassification under the exemption rules. In these eleven lawsuits, financial advisers allege that they are due overtime because they are really non-exempt employees who have been erroneously classified as exempt. As a side issue, the plaintiffs also contend that that suffered illegal deductions. Incredibly, these settlements could involve almost 22,000 workers.

Under the terms of the deal, Merrill Lynch would distribute as much as $43.5 million and the majority of this sum would go to the class members. The Company would also hold back some of the monies for unclaimed funds. The settlement would entail, as a starting point, an agreed-upon designation (and certification) of a collective group in connection with the FLSA claims and another designated class for Rule 23 purposes for inclusion in the state claims.

These employees were not earning “minimum wage.” They are likely to be high-end earners and that is why the exposure on these cases is so astronomical. Employees who perform these jobs are likely being classified as exempt under the administrative exemption. This is a problem. This exemption is the toughest one of the three white-collar exemptions to qualify for as the employees must use discretion and independent judgment, which is difficult to define and even more difficult to implement as a job function in this industry. The more regulated an industry is, with significant reliance upon guidelines and procedures manuals and practices, the tougher it is to argue that the requisite amount of discretion is being utilized.

One answer is to ensure, insofar as operationally possible, that the job description and actual operating practice make clear that manuals are used only for guidance and the employee must then use discretion and independent judgment to evaluate courses of action (e.g. financial investments) and then choose from those the best alternative for a particular client.  As is evident, the stakes are dramatically high.
 

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In a lawsuit entitled Newark v Executive’s Den, filed in federal court in the Northern District of Ohio, dancers at a go-go bar, so-called exotic dancers, are suing their employer in a class action for failing to pay them the minimum wage and for, allegedly illegally, taking a portion of their nightly tips. The plaintiffs allege that the class could contain between 50-75 members. The club, called Executive’s Den, is charged with calling the dancers “independent contractors” rather than employees. The derivative allegations are that the club failed to pay them minimum wages and overtime compensation.

One of the criteria for showing an employment relationship is “economic dependence.”  Herein, the plaintiffs claim that they were economically dependent on the club because the club set their fees and schedules, mandated that they solicit drink orders from customers and set a nightly order of performance on the club’s center stage in a rotation. Thus, the crucial focus of the case will be on the (usually first) prong of “control” in the independent contractor analysis. If the dancers were not free to make their own decisions vis-à-vis their employment, they could well be classified as employees.

The tip issue revolves around the allegation that the club directed that the dancers pay a “club fee” from their nightly tips. The problem for the dancers and the trigger that might have sparked the lawsuit is that the dancers had to pay these fees, whether they earned five hundred dollars or ten dollars for their night’s endeavors.  In other words, the workers still had to pay the house back, which essentially, allege plaintiffs, is paying your boss for the “privilege” of working there.  The dancers seek liquidated damages for their unpaid wages under the Fair Labor Standards Act (“FLSA”) and treble damages under Ohio law, as well as the return of all tip dollars. The named plaintiff seeks a class defined as all dancers employed by Executive’s Den in the three years prior to the complaint being filed.

Whether working on a construction site or gyrating around a pole in a club, if individuals are found to be “employees,” rather than independent contractors, then they are entitled to all statutory protections, such as time and one-half overtime under the FLSA.  There are many factors which go into the calculus of determining who is and who is not an independent contractor.  It is a totality of the circumstances test, but under any construct, state or federal, whether the workers’ compensation law, the unemployment law, or an anti-discrimination statute, the initial focus is on control.  If the putative employer succeeds in defending that front, the focus switches to whether the person is in an “independently established business.”  Employers should note that states are cracking down on these classification issues, because if workers have been misclassified, the particular State will derive revenues from unemployment contributions and other contributions and taxes that have not been made or paid.

 

 

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A class action has been filed against DHL Express Inc., the well-known package delivery company, its contractor, Sky Land Express, Inc., and the individual owner of the contractor. The complaint was brought by a delivery worker, who was an employee of the contractor, alleging a failure to pay overtime. The delivery worker, plaintiff Leandre Layton, alleges that he worked over 40 hours a week, but was not paid overtime.

According to the complaint, filed in the U.S. District Court for the Northern District of Alabama, DHL is alleged to be a "joint employer" of Layton and the putative class under the Fair Labor Standards Act ("FLSA") because DHL allegedly supervised and controlled their work schedules and required them to wear DHL-logo uniforms, drive DHL-logo trucks, carry DHL-logo ID badges, report to a single establishment at the DHL building in the Birmingham International Airport every day by 6AM, to use DHL hand-held scanners, and to drive to delivery and pick-up stations designated by DHL.

In addition to these requirements, Layton was required to follow DHL rules and regulations which administered DHL policy and codes of conduct with regard to customer service and delivery truck maintenance matters. Further, DHL tracked the travels of these delivery workers through what the complaint calls "a sophisticated computer tracking system," which "closely supervised by latitude and longitude the exact location of the Plaintiffs and putative class who worked as drivers."

This case, although similar to other cases reviewed on this blog about independent contractors, involves employees working for a contractor that were almost entirely controlled by the other party to the contractual relationship. Employers, and the contractors working with them, should not rest easy believing that their relationship, or how they choose to couch their relationship, will magically dispel all confusion about the economic reality of the relationship between them and their employees. Similarly, an employer's relationship with a contractor will not release the employer from obligations that it would otherwise owe to employees, such as overtime. Under the FLSA, the true nature of the relationship will be scrutinized, and thus, if you are an employer and your contractor's employees are wearing your hat, your uniform, and/or your logo, you should probably re-examine the level of control you are exerting over those employees.
 

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A class of table games supervisors sued Harrah's, claiming they were non-exempt and entitled to overtime.  The casino defended by asserting that they were exempt under the administrative exemption.  This exemption remains (even after the August 2004 revisions to the FLSA regulations) the grayest and most difficult (for an employer) to prevail upon in an overtime claim.  Interestingly, in this case, the employer did prevail.

The supervisors performed a number of functions that were non-manual in nature, which were important to the casino's general business operations.   They regularly opened and closed the tables games, approved customer purchases of $10,000 or more in gaming chips, monitored the dealers and the customers and rated the customers' activities at the tables.  This last activity was important in determining whether and how much to "comp" customers, which are, beyond dispute, the lifeblood of a casino's operation.  They also participated in the hiring and development of dealers and their ratings of dealers impacted on whether dealers received raises and the amount of those raises.

Although the plaintiffs argued that their tasks were predominantly clerical in nature, the Court rejected that contention.  The Court stressed the nature of their work as it related to Harrah's customers and also highlighted the supervisors' role in developing, training and disciplining dealers as well as being involved in determining their compensation.  These were clearly administrative functions under the FLSA regulations, according to the Court.

The exercise of discretion and independent judgment is also essential to meeting the administrative test and this is often the Titanic-like iceberg that employer arguments for exemption always run smack into.  In this case, the employer argued that the supervisors displayed the use of discretion in the coaching, discipline and appraisal of dealers, especially on their performance, as well as deciding whether and when to issue comps to customers and when to open/close table games.  The plaintiffs did not directly dispute this, but contended that they performed these functions so infrequently as to render them only "occasional" duties.  The Court disagreed, holding that this utilization of independent judgment need not be exercised on a daily basis, but, rather, when the particular situation called for it.

This case provides valuable guidance for employers on the meaning of the administrative exemption.  Although still the most difficult and esoteric of the so called white collar exemptions to meet, there is still hope.   So, let it ride! 

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A federal judge has ruled that a class of information technology workers in California was exempt from overtime and has granted the employer summary judgment on the overtime claims.  That this occurred in California is fairly significant as that State has been a breeding ground for numerous class actions, many of them involving computer workers.  What is even more significant is that the federal judge had conditionally certified this class in January as a proper class, but now, upon a motion to de-certify the class, changed her mind.

The workers were database administrators, programmers and analysts, who claimed that their work was primarily "production work" and thus did not qualify for either the executive or administrative exemptions.  The court disagreed, finding that they were not "merely" doing production work but performed operations and functions important to the business operations of the employer, Electronic Data Systems.

The plaintiffs also asserted that they were closely supervised and did not possess or exercise the independent judgment necessary to classify the work as exempt.  The judge agreed that the workers were supervised, but decided that their work did require the utilization of considerable independent judgment and discretion.

I wonder why defendants did not argue that the workers fell under the computer exemption as well.  Even if they were salaried, rather than hourly, these employees, if they performed the requisite computer duties called for by the exemption test, would have nevertheless fit within the administrative and/or professional exemptions.  In any case, it is reassuring to see a federal court delve into the details of the actual job duties of a group of workers, stack those duties up against the (still hard to interpret) regulations governing exemptions and reach a correct conclusion. 

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Workers have filed a serious class action against the cell phone division of AT&T.  The workers, who received overtime pay at first, have claimed that the Company's supervisors changed the data base so employees could not enter more than 40 hours of working time in a week.  Thus, these employees were doing productive work for the Employer, but were working "off the clock."  Naturally, part of the alleged scheme, according to plaintiffs, was that the Company was not keeping accurate records of time worked.

These are dangerous case for an employer, because intentionally telling workers to work off the clock or making it impossible for them to enter additional working time, evidences a willfulness that could easily garner an extra (third year) tacked onto the two-year statute of limitations. It also would mean that any damages secured would, in all likelihood, be doubled (i.e. liquidated damages).

The plaintiffs estimate that 100 people would be involved.  Given that these employees probably earned considerably more than minimum wage, the resulting damages would be geometric

In the industrial world, there is often a great deal of pressure placed on managers (i.e. first level, middle managers) to stay within labor budgets and keep overtime and other personnel costs down.  Maybe this is what gives rise to doing something like this, but there really is no reason to engage in this kind of behavior, for any employer.  There is no defense to the action.  If the  evidence shows that intentional steps were taken to keep employees from accurately recording their actual working time, it becomes almost impossible to maneuver and find a viable defense.

Long story short-don't do it!

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Another financial services industry class action.  It seems like there is one every week.  The same themes predominate.  In this latest JP Morgan suit, the hedge fund accountants are claiming they were improperly classified.  They also claimed  they worked 5-6 days per week and worked many hours more than forty.

The fund accountants were responsible for maintaining hedge fund books and records, preparing financial statements, reviewing materials for audits and assembling reports and special projects.  Whether this work is exempt or not is difficult to tell but if the work at issue was highly standardized, routine work, that was performed according to procedures already in place, then the company could face a real problem.  As the salaries of these employees must be at a fairly "high" level, the damages could be quite significant.

This industry is rife for these lawsuits.  Simply because a person works with numbers, or does accounting-type work does not mean that he is exempt from overtime.  Naturally, if the accountants at issue are CPAs and use their CPA training/education in their work, then this case goes nowhere.

But, if they are more junior type accountants or "staff accountants" and do not possess CPA licenses, then watch out. 

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Food vendors at Fenway Park in Boston have filed a class action against Aramark Sports LLC, their employer, alleging that the company assessed service charges and then did not pay the service charges out to the employees.  The suit also claims improper payment of overtime.

The service charges are added on to anyone buying food at the ballpark.  The workers are paid their hourly wages, but are not given any of the service charge proceeds;  the suit charges that this is "unjust enrichment" to the Company.  The suit also alleges that the Company did not pay wages timely, did not properly calculate overtime and docked employees for breaks they did not take.

The suit was filed in state court, but the Company lawyers have sought to remove it to federal court, based on the theory that this suit is preempted by federal labor law, meaning that the suit is based on interpretations of labor contracts and therefore should not be in a court.  The Company also maintains that as the suit would seek to include more than 100 people, the Class Action Fairness Act of 2005 mandates that the action be heard in federal court.  This fairly new law provides that federal courts have jurisdiction over any class action that involves more than 100 workers and the alleged amount at issue exceeds $5,000,000 must be brought in federal court. 

There have been a number of these service charge/tip cases working their way through the courts.  The recent Starbucks case, that I reported on a few weeks ago, involved similar allegations.  Where a service charge assessed to customers is advertised by the Company (or restaurant) as a "gratuity" or where the company indicates that these service charges will be distributed to employees and they are not, that forms the basis for a lawsuit (and bad employee relations).

Change up or fast ball?  We'll see.

 

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A state court judge in California has ordered Starbucks to pay more than 105 million dollars in back wages to servers and other employees because the tip pool included managers, which is a clear-cut  violation of the law.

There are 120,000 people covered in the case.  The court also ordered injunctive relief, barring Starbucks from continuing to have management-type people taking part in the tip pool.  The court ruled that the supervisors were "agents" of the company and thus could not share in the tip pool.  This sends the clear message that even huge corporations are not above the law.  The Company plans to appeal.  More to follow.

The lesson---this all started from the complaint of a single employee, which then mushroomed into this gigantic debacle.  Every company, restaurant, trucking company, computer software company, whatever, must continually analyze its compensation practices, with an eye towards the special industry that the employer is in and any special rules (state or federal) that apply to that industry/business.

The ever present danger of a single employee starting a nationwide class action is the specter that should scare employers into such analyses. 

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Many times when an employee or group of employees files a FLSA class action, the plaintiffs will file a state action, making the same allegations, i.e. unpaid overtime, but under a state wage-hour statute.  There have been a host of cases exploring the issue of whether these parallel actions can be maintained simultaneously.  The tension is that a FLSA action is an opt-in action, meaning in order to join (whether for the good or bad) the employee must affirmatively opt in.  A "regular" class action, such as those brought under a parallel state statute, are opt out actions, meaning everyone similarly situated (as determined by the court) is in, unless they affirmatively opt out and decide not to be a part of the case.

I believe that dual maintenance of these actions is not proper and such dual actions undermine the validity of the Fair Labor Standards Act and the specific procedures Congress enacted for the enforcement of this federal law.  Many federal judges have agreed.  For example, in Woodard v FedEx Freight East, Inc., decided February 19, 2008, the federal judge in Pennsylvania agreed that a companion state class overtime action to a federal overtime action was the "antithesis" of the FLSA collective action and undermined the FLSA.

The court noted that Congressional intent was to limit the number of participants in such collective actions to people with similar interests.  The prosecution of the companion state action would frustrate that Congressional intent.  The court rejected the argument that dual maintenance was proper as it would facilitate judicial economy and convenience.  Such considerations, ruled the court, cannot override a Congressional mandate.

There have been other courts that have allowed dual suits to go forward in this context.  I believe those courts are dead wrong.  How, for example, would the procedure of identifying class participants be accomplished.  Under a FLSA opt-in process, there is a time limit set for people to opt in and if they do not, they are foreclosed from doing so.  Under the dual maintenance process, this would not matter as those that failed to opt in would, essentially, be in anyway unless they deliberately opted out.  This is too incongruous and contradictory to believe that it could be handled efficiently and it further highlights the contradictions inherent in allowing both actions to continue at once.

I believe this issue will need to be decided by federal appellate courts and/or the United States Supreme Court.  In the interim, the defendant/employer should always make a motion to dismiss the state law overtime claim, as such a motion stands a good chance of succeeding and then all the employer is fighting is federal FLSA claim, which is the more dangerous of the two, all things considered.

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A federal court in California declined to certify a class action under the FLSA, an action that was filed by financial sales representatives of US Bancorp in a case entitled Guess v US Bancorp.  The plaintiffs wanted a nationwide class action, as many of these suits hope for and seek.

In numerous postings, I have observed that the threshhold for obtaining class certification in a FLSA class action is relatively low.  There must be a common policy, plan or practice applicable to all potential, putative class members.  In this case, the employer argued that the job titles and, more importantly, the job duties of the proposed plaintiffs varied tremendously and thus they were not  "similarly situated" for class action purposes.  The court agreed.

The plaintiffs had contended they were misclassified as exempt, were really non-exempt and therefore overtime eligible.  The company argued that it employed 52,000 people nationwide and the job responsibilities differed widely from state to state and division to division.  The key was that the plaintiff failed to make a sufficient showing that the work duties of all other financial services representatives were substantially similar to his.

This gives heart to employers.  These class actions can be defeated if the proper evidence rebutting allegations of "similarity" can be adduced.  The plaintiffs in this case, however, have been given the opportunity to offer additional evidence and re-file the class action motion.  So, maybe, we will hear more of this.  Maybe not.  

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A group of San Francisco police officers has filed a class action, seeking compensation for time they allege was working time that occurred before their shifts.  They claim that they should be paid for putting on their uniforms and taking care of their equipment.  The class has been conditionally certified, meaning that the defendant City will have the ability to try to de-certify the class in the coming months.  It is problematic, however, if that endeavor will succeed.

In opposing the conditional certification, the City had also argued that a two-year, rather than three-year, statute of limitations should control but the Court refused to decide that issue at this juncture in the proceeding.  This is a crucial issue to the case, because if the employer's conduct is deemed "willful," the extra, third year is added on to the calculations, significantly increasing the potential liability.  At the end of the case, following trial, the issue of willfulness is decided.  That may be too long to wait, because by the time a trial commences and ends, thousands of more legal dollars have been expended in the defense.

The issue in these working time, preliminary/postliminary cases, always defaults back to the elements of employer compulsion, if any, and the connection between the preliminary activity and the main, primary job.  It is incumbent upon every employer to determine whether it forces employees to come in early to perform any activity even tenuously related to their job.  If so, the employer must make a determination regarding compensability.  Or, allow the employees to first clock in and then get dressed or attend to the other preliminary duties.

Just don't ignore the situation.

 

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When a FLSA class is certified, the defendants then have the opportunity to decertify the class at a later date.  The employer argues that the people who opted in to the class are dissimilar to those who started the suit and should be eliminated.  Thus, the employer hopes to fragment the class and have the court declare it a nullity.

Recently, Starbucks tried to decertify a class in an action brought by a group of assistant managers who claimed they were improperly denied overtime.  In this case, notice had been sent to 11,000 putative class members and 355 opted into the collective action.  The Company claimed the opt-ins were dissimilar and would require too much individualized examination, which is the antithesis of a "class" action proceeding.

The federal judge held that the individuals worked under the same job title and job description.  They all reported to the same supervision chain of command.  The Company had argued that the workers were employed under different immediate managers and worked at widely dispersed locations in thirty states.  The plaintiffs also had evidence that they were compelled to work off the clock.

Starbucks also argued that the small number of opt-ins showed that there was no common, overall policy relating to off-the-clock.  The court brushed that aside, finding that people have many reasons for not wanting to opt into an action.

Thus, employers will have two bites at the apple in defending a class action.  First, the employer argues, at the conditional certification stage, that no "class" of similarly situated people exists.  Second, the employer can then seek to decertify.  The best argument is dissimilarity, but some significant showing must be made in this regard or the class will stay as a whole, to the considerable financial detriment of the employer. 

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Amidst a wave of recent cases dealing with the exempt status of sales representatives, one case has shown what employers can do to eliminate liability for such workers as well as potential pitfalls that need to be avoided. In Barnick v. Wyeth, a judge dismissed a proposed class action against the Wyeth company, ruling that the a group of sales representative plaintiffs were exempt under the California statute they sought to bring suit under.

The judge granted Wyeth’s motion for summary judgment finding that the proposed plaintiff class—“representatives” of pharmaceutical products—were actually functioning as sales representatives, and therefore, were subject to the “outside salesperson” exemption.

This case teaches that the first step for employers to undertake when sued in a wage-hour class action is to examine whether it is a state or federal claim that is being brought against them. Employees may sue under either a state statute, the FLSA, or both and a particular state exemption or overtime law may likely have different, and often stricter, standards than the federal Fair Labor Standards Act (“FLSA”). The California wage and hour statute at issue in Wyeth did have tough requirements on employers—requiring overtime pay, meal breaks, and other benefits, highlighting that the FLSA and state laws are not always parallel, even though they can appear strikingly similar. In Wyeth, the federal judge refused to apply the FLSA’s definition of “sales” to California’s “outside salesperson” exemption, finding the definition to be “not persuasive” in his interpretation of the California statute.

In Wyeth, the salesperson at issue was hired on the basis of his sales experience, his job was referred to by his employer (and also himself) as a sales position, he received specialized “sales training” throughout his time there, and his pay was based in part on the sales he generated. According to the judge, all of these factors were significant in finding that the product “representative” was actually a functioning outside salesperson, and therefore exempt under the statute.

Thus, this claim was defeated in one fell swoop before it even got off the ground. A ruling of exemption for an entire class, or, more particularly, the named plaintiff(s) at a (hopefully) early stage of the litigation will erase the class action. The tough part is to know if there is an exemption defense to be raised and the manner and timing as to how to do it.

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In the continuation of a class action that has been going on for some time, Wal-Mart has recently been ordered by the court to pay a class of 125,304 employees roughly $62 million in liquidated damages for Walmart's violating state wage and break laws by refusing to allow employees to record their hours worked in the computerized pay system. This action had the effect of employees not being paid for all time they worked.  In addition, Wal-Mart prohibited employees from taking need rest breaks which they had been promised, thereby further denying employees rightfully earned wages. The jury determined that Wal-Mart saved $1,031,430.00 by denying employees the right to record their hours in the computerized pay system and $48,258,111.00 by prohibiting promised rest breaks. Taken together, the estimated savings totaled $49,289,541.00.

What this case highlights is that liquidated damages are a real possibility in a class action.  Such damages are not viewed under the law as a fine or penalty but are deemed to be more in the vein of “waiting time” damages.  The employees are awarded the liquidated damages as a remedy for the long delay in their receiving their justly deserved wages, at the time they were due. In this case, 98.81% of the 125,304 class employees were owed liquidated damages as determined by an expert. The dollar amount arrived at was $62,253,000.00. The number could have been much greater as the state law at issue required a $500.00 penalty for each violation of rest break violation.

This award is, to put it mildly, exorbitant.  The ostensible excessiveness of the liquidated damages portion of the award does not detract from the fundamental fact that such damages are an all too common component of a successful class action. The basic lesson to be taken from this is for employers to be ever cognizant that their failure to comply with all wage-hour laws and regulations may provide the fodder for the filing of a class action lawsuit and the imposition of large-dollar damage awards.

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Everyone knows (all too well) what constitutes “work,” but do we really? Naturally, if we are performing our primary job, we know we are working (and the employer must pay for that time). What about activities that are performed either before the start of the “bell” or following the formal end of a “shift.” Depending on what they are, these activities may or may not constitute compensable working time. Indeed, the focus of numerous class actions is an allegation that such preliminary and postliminary activities are “work.”

The issue of what constitutes compensable working time is often confusing because reasonable minds can differ as to whether the performance of “work” requires some degree (however small) of physical (or mental) effort or exertion. That may not, however, be the best prism through which an employer should consider the matter. The better view, and one recently adopted by the Third Circuit Court of Appeals, is whether the activity at issue is integral or indispensable to the performance of the “primary” duty of the employee. This analysis is often at play in so-called “donning and doffing” cases, such as in De Asencio v. Tyson Foods Inc.

These employees worked in a chicken processing plant of Tyson Foods. Before/after their shift and for their breaks and lunches, these employees had to put on (“don”) and take off (“duff”) safety and protective clothing. The workers filed a collective/class action under the Fair Labor Standards Act (“FLSA”), claiming that the time was compensable. The jury found against them, primarily because the trial judge had instructed the jury that for the activity to be deemed “work,” it had to involve some degree of exertion, rather than being an activity controlled/required by the employer or for the benefit of the employer. The workers appealed and the Third Circuit reversed.

The Third Circuit reasoned that the proper test was not an “exertion” test but rather whether the activity was linked so closely to the principal job performed that the principal job could not be performed if the preliminary/postliminary activity was not engaged in. In this case, the connection was clear—the chicken processors could not engage in their jobs if they did not wear the sanitary/protective clothing. Thus, whether or not they engaged in any physical exertion was of no consequence.

Other activities may well fall into the category of “indispensable” when compared to the main job function. Consider a cashier whom the employer commands to report ten minutes early to count the money in the cash register, before commencing their shift. Similarly, consider a nurse who comes in early, before the start of her shift, to receive information from the nurse finishing her shift on the status and needs of patients. Although these are not donning and doffing cases, the principle espoused in the Tyson Foods case nevertheless remains applicable. Without the early arrivals of these employees, they would not be able to perform their primary job. What is also crucial here, as in Tyson Foods, is the element of employer compulsion---the employer is ordering the early reporting, for its benefit, i.e. ensuring smooth continuation of operations.

The lesson for employers is to ascertain what, if any, preliminary/postliminary activities are engaged in by employees. If employees are doing any such activities, the degree of employer compulsion and, most importantly, the relation of that activity to the principal job must be examined to conclude if the time is compensable

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Pursuant to a decision by a federal court judge in Los Angeles, thousands of Ortho McNeil sales representatives will be given the opportunity to opt into a Fair Labor Standards Act class action, which will encompass the entire nation. The issue is whether they have been properly classified as exempt under the “outside salesman” exemption. There is not often litigation involving what kind of work constitutes outside sales, but the unique structure of the pharmaceutical industry has lent itself to these kinds of claims and these lawsuits are gaining a foothold. At stake is millions of dollars in unpaid overtime wages. Plaintiffs have also lodged similar class action suits against other pharmaceutical giants, such as Pfizer, Astra Zeneca and Johnson & Johnson, cases which are still pending.

In the Ortho-McNeil case, the judge granted what is referred to as a “conditional class certification” finding that the named plaintiff has established a modicum of similarity between himself and those seeking to join the suit. At a subsequent juncture in the case, the defendant will have another opportunity to show that there are sufficient dissimilarities such as to preclude continuing the certification of the class.

The sales representatives have, as their primary job function, the promotion of pharmaceutical products to health care providers. They allege that they are non-exempt because, technically, they do not sell anything. Their counsel claims that all they do is drop off brochures and information packages for doctors. If the representatives actually sold product, they would clearly be exempt as outside sales persons, but the allegation is that they do not sell anything.

A few days ago, a federal judge in New Jersey allowed an additional 211 sales representatives to join an action against Merck. Sales representatives have brought a similar lawsuit against Pfizer but the judge there has not yet rendered a decision on the scope of the class.
Once this ball starts rolling, it is hard for the “next” employer to stop it. It is plain that the pharmaceutical industry is under siege from these actions. If one class of plaintiffs succeeds in one action, whether in California, New Jersey or elsewhere, the ripples will be felt across the county. The best protection against this contingency obtaining is a proactive approach, designed to keenly scrutinize all employees classified as exempt, to ascertain if those designations actually pass muster under the revised FLSA regulations (and corresponding state laws).

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It is always possible for one person to sue their employer for wages or alleged back due overtime. What is far more pernicious and what is, regretfully, happening far too often over the last several years, is a so-called “class action.” In a class action, a group of employees, ranging anywhere from a handful to several thousand, sue their employer, sometimes in a class that encompasses the entire nation. In that scenario, the stakes are geometrically multiplied.

Importantly, FLSA collective actions differ in one dramatic way from class actions filed under other federal or state laws. In FLSA cases, the employee(s) must opt in, meaning that they must affirmatively sign a document evidencing that they wish to be a part of the lawsuit. In other class actions, the employee is presumed to be a part of the class and if he wishes to refrain from the litigation, he must opt out. The difference between the FLSA and other laws can often work to the employer’s advantage, especially if the employer believes that it has arguably broken the law, because of the statutory framework. There is a two-year statute of limitations (with limited exceptions) for FLSA overtime claims; an action for opt-in plaintiffs only commences when they sign a written consent to become a party and file it with the court.

The most crucial element is the necessity that the employees be deemed “similarly situated” for purposes of a collective action. Employees are “similarly situated” for purposes of FLSA collective wage suits if they are subject to a common policy, plan or design, that stretches across company departments or locations. If there is no commonality, there is no collectiveness and the action will be dismissed. On the other hand, “similarly situated” does not mean “identically situated.”

Part of the process by which a court will certify a class occurs in the so-called “notice stage.” In this preliminary stage, the trial court will make an initial decision as to whether notice of the action should be given to other potential class members and will make that decision based on any existing commonality (or lack thereof). Certification at this point is seen as a “conditional certification” and is based on a fairly lenient standard. This certification also begins the process of court-authorized notice.

The crucial, proactive strategy is to quickly and at an early stage of the litigation assess: 1) whether a common policy or practice exists which would likely militate a finding that a collective action is appropriate; and, 2) determine if the policy/practice at issue is illegal or questionable. If so, the prudent course is to change the offending practice or policy and then allow the course of the litigation to continue. The change in improper policy stops the clock from running, as it terminates any valid claims from that point forward. Remember---an individual’s own lawsuit does not start until he signs the consent and opts in. If the issue is an alleged misclassification of employees as exempt, a careful and objective internal audit of the positions at issue should ensue because these classification decisions are fact sensitive and are coupled with an overlay of highly nuanced federal regulations. In addition, classification decisions carry numerous implications besides whether the employees should receive overtime.

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