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

The National Association of Medicaid Directors (“NAMD”) is challenging the proposed rule to extend minimum wage and overtime protections to home health care workers.  Currently, home health care workers are exempt from the minimum wage and overtime requirements under the Fair Labor Standards Act.  Pursuant to the proposed change, any home health care work assigned to a household by a third party, such as a staffing agency, will be entitled to minimum wages and overtime.  However, home health care workers that are directly employed by an individual or household will continue to be classified as exempt employees.

In December 2011, the United States Department of Labor (“DOL”) announced the proposed rule change.  To date, it is still not clear when the revised regulation will be enacted.  Part of the delay may stem from the controversy that the proposed regulations has generated.  Labor rights advocates have argued that home health care workers are typically minorities and deserve to be fairly paid.  On the other side of the debate, the NAMD has argued that the added cost of paying home health care workers minimum wage and overtime would result in a diminished level of care.  Additionally, disability rights groups claim that the elderly and disabled will be forced into nursing homes due to the expected skyrocketing cost of home care.  Nursing homes will not be affected by the proposed rule as their workers are exempt from minimum wage and overtime requirements.

Staffing companies should be prepared for the likelihood that the proposed rule will eventually be enacted.  In the meantime, these businesses should examine which policies and procedures need to be put in place to comply with the rule change.  In particular, businesses will need to consider how to track and record the time worked by home health care workers so that they can be paid on an hourly basis.
 

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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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On February 9, 2012, the U.S. Department of Labor (“DOL”) announced that California has entered into a “memo of understanding” to work with the DOL to “end the practice of misclassifying employees” as independent contractors.  This agreement between California and the DOL is part of the federally funded Misclassification Initiative that was launched in September 2011.  The purpose behind the Misclassification Initiative is to enable federal and state agencies to coordinate the enforcement of wage and hour laws.  California is the twelfth state to enter into a “memo of understanding” with the DOL.

Thus far, its not clear whether the Misclassification Initiative has been a success.  The DOL has stated in a press release that in 2011, it collected more than $5 million in back wages resulting from misclassification of employees as independent contractors.  However, the DOL has not stated whether there is any connection between the recovery of this money and the coordinated efforts of federal and state agencies.  Similarly, the DOL has not indicated how much of this $5 million in back wages was collected after September 2011.  Additionally, I have found it surprising that it took nearly five months for another state to join this Initiative.  Presumably, the failure to attract more states to join efforts with the DOL has been a disappointment.

Along the same lines, in September 2011, when the federal government launched the Misclassification Initiative,  I wrote that the DOL has failed to provide any information as to how the DOL and state agencies would work together to end misclassification.  Its now February and there is still no indication that there are any procedures in place for a coordinated “attack” on misclassification.

While the success of the Misclassification Initiative is dubious, at best, employers should still expect the government to scrutinize, and likely dispute, the classification of any worker as an independent contractor.
 

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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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On December 1, 2011, the United States Department of Labor (“DOL”) announced that it will be conducting an “enforcement initiative” focused on the residential care industry in North Carolina. The residential care industry consists of group homes, long term care facilities, and other businesses that provide care for individuals who are incapable of caring for themselves.

As part of the initiative, the DOL plans on visiting residential care facilities to interview employees and review their pay practices and records.  The DOL stated that that since 2006, it has investigated 120 residential care facilities and recovered more than $980,6000 in back pay for 1,077 employees.

According to the DOL, businesses in the residential care industry have, among other violations of the Fair Labor Standards Act, failed to pay workers for attending required staff meetings and training.  This practice contradicts the general rule that time spent attending employer sponsored meetings and training is compensable.  Additionally, the DOL claims that residential care employers have consistently deducted 8 hour sleeping periods for employees who work fewer than 24 hours.  The federal regulations are clear that an employee who is on duty for less than a 24 hour period must be paid for all of his or her time, including sleeping time.

Another area of concern not specifically addressed in the press release is whether such facilities, as is often standard practice, automatically deduct a set period of time for lunch periods (e.g. 30 minutes or an hour).  In such instances, employees have successfully filed complaints that they worked through these automatically deducted lunch periods and are entitled to compensation.

Employers in the residential care industry should review their pay practices in anticipation of heightened scrutiny by the DOL.  In particular, businesses within this industry need to carefully examine whether they are paying employees for all time worked in a given day.

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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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On September 19, 2011, the leaders of the U.S. Department of Labor (“DOL”), Internal Revenue Service, and eleven state agencies entered into a “memo of understanding” to work together to “end the practice of misclassifying employees” as independent contractors.  The participating agencies claim that some employers classify their workers as independent contractors, rather than as employees, to avoid paying payroll taxes and required compensation to employees.  The “memo of understanding” will enable the federal and state agencies to share information and coordinate the enforcement of both tax and wage and hour laws.

According to Labor Secretary, Hilda Solis, “Misclassifying employees can result in workers being denied the minimum wage, overtime pay, unemployment insurance, and workers’ compensation benefits.” Secretary Solis further stated, “This makes it harder for low-wage workers to put food on the table and provide for their families.  It means a greater chance of working in unsafe conditioned and not being compensated when hurt on the job.”  The IRS Commissioner Doug Shulman commented that by entering into this agreement, “we will work together more efficiently to address worker misclassification issues, and better serve the needs of small businesses and employees.”

While the press release issued by the DOL discusses the intention of the agencies to work together, it does not provide any detail as to how this objective will be achieved.  Similarly, there is no indication that there are any procedures in place for a coordinated “attack” on misclassification.

Accordingly, it will be interesting to see whether this agreement by the federal and state agencies will have any impact on the prosecution of perceived misclassification.  At the very least, employers should expect the government to scrutinize, and likely dispute, the classification of any worker as an independent contractor.
 

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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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On July 14, 2011, several lobbyists and business representatives argued before the House Education and the Workforce Subcommittee on Workforce Protections (“Subcommittee”) that the Fair Labor Standards Act (“FLSA”) needs to be revised.  J. Randall MacDonald, senior vice president of human resources at IBM and chairman of the HR Policy Association, told the Subcommittee that the FLSA is “failing America” because it does not provide employers with enough flexibility in work arrangements with employees, nor does the law provide employers with sufficient certainty regarding their legal obligations.

While the hearing was not called to discuss amending the FLSA, MacDonald and other management side lobbyists blamed the climbing unemployment rate on the influx of wage and hour lawsuits over the past decade.  Similarly, MacDonald argued that employers cannot comply with the law because the standards set forth in the FLSA are not applicable to the modern workplace.  This sentiment was echoed by the chair of the Subcommittee, Tim Walberg, who stated, “It is hard to imagine a law intended for the workforce known to Henry Ford can serve the needs of a workplace shaped by the innovations of Bill Gates.”

Among the proposed changes to the FLSA are: clarification of which computer employees are exempt from overtime; guidance on whether activities such as checking email are considered work; and the designation of well compensated, commissioned “inside” sales employees as exempt.

Judith M. Conti, federal advocacy coordinator for the National Employment Law Project in Washington, D.C., as well as various Democrats on the Committee, opposed these changes to the FLSA.  Ms. Conti stated that revisions to the FLSA could detract from the protections afforded employees.  Rep. Dennis J. Kucinich argued that the business representatives appearing before the Subcommittee were “advocating for a system that is manifestly unfair” and that allowed wages to go down while corporate profits rose.

The proposed changes to the FLSA could provide employers with much needed assistance in complying with the law and avoiding potential lawsuits.  However, employers shouldn’t hold their breath as there is no reason to believe that Congress will be revising the FLSA anytime soon.
 

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On June 7, 2011, the United States Department of Labor (“DOL”) issued a press release announcing that it had obtained summary judgment on behalf of 57 security guards who had alleged overtime and record keeping abuses against International Detective & Protective Services (“IDPS”) and its owners/officers in violation of the Fair Labor Standards Act.

As a result of the decision, IDPS and its owners and officers will be required to pay more than $200,000 in back wages and liquidated damages and will be permanently enjoined from violating the law going forward. The lawsuit is entitled Solis v. International Detective & Protective Services, et al. and was filed in federal court in the Northern District of Illinois.

In Solis, the DOL alleged that IDPS, which provides security services, had improperly classified security guards as independent contracts rather than employees. As a consequence, the Company admittedly failed to pay the security guards overtime pay for all hours worked over 40 in a week.

In response, Company relied heavily on the “Independent Contractor Contracts,” which were signed by all security guards, stating that they were independent contractors. The Court disregarded the agreements, and instead, held that “The Guards were not in business for themselves but rather worked on IPDS’s behalf and in accordance with IDPS’s rules to provide security services.” Accordingly, the Court found the security guards to be employees rather than independent contractors.

Solis illustrates that an Independent Contractor Agreement is not worth the paper its written on if an employer treats the individual in question as an employee. With that in mind, the courts have instructed employers to consider whether they exercise sufficient control over the contractor or “consultant,” and whether the individual is truly in business for his or herself. This is a difficult hurdle to overcome in proving someone is not an “employee.”
 

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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 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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In an October 28, 2010 posting in the New York Labor and Employment Report, Joseph Dole comments on a new law that took effect in New York State on October 26, 2010.   That law, entitled the Construction Industry Fair Play Act, creates a presumption in the construction industry that all workers are statutory employees, not independent contractors.  The law adopts a tri-partite test for proving someone is a bona fide independent contractor, a test identical to the New Jersey test for such determinations and one which (I have found through numerous cases) is very difficult to satisfy.

The law also sets forth one dozen factors for determining when a sole proprietor (e.g. single worker) is, in actuality, a true operating business for purposes of the statute.  Examination of the factors illustrates that establishing that a "business" truly exists will be the major hurdle for a contractor who has to prove that his subcontractors are independent contractors operating their own businesses.

New Jersey has passed a similar law, the aptly named the Construction Industry Independent Contractor Act, which focuses on the same issue and which imposes (in my view) excessive and punitive penalties and fines for misclassifying employees as contractors.

These laws, and there are others, highlight a disturbing trend for employers.  When individuals are misclassified, any number of federal and state agencies (e.g. IRS, Unemployment, Workers Compensation divisions) lose revenue.  That provides the incentive.  It is also an easy trap to fall into because all the invest gator has to do is to request a copy of all the 1099 Forms that a contractor or employer has issued, which must be turned over and cannot be withheld.

Then, the investigator goes down the list and inquiries as to what each of these alleged independent contractors did and ask for proof that they are in their own business.  It is then the contractor's obligation to provide that proof and, if not forthcoming or convincing, re-classification to employee status will occur, accompanied by the host of fines and penalties that such a governmental action(s) will produce.

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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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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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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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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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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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I have written a number of times about the difficulty of proving that the administrative exemption applies to dispatchers in the transportation industry.  I have noted that most transportation employers consider these employees exempt because their job functions are critical to business operations.  Under the Fair Labor Standards Act, however, that is not the test. Rather, the employee must be paid a salary and perform certain kinds of duties.  In Rock v. Ray Anthony Int’l LLC, the Eleventh Circuit held that a crane dispatcher was not entitled to overtime compensation because he was an administrative employee.  This is a rare victory for employers on a difficult employee classification matter.

The appellate court agreed with the lower court that the employee “effectively managed” an entire department and did in fact exercise discretion and independent judgment, which is often the greatest obstacle to successful application of the exemption.  This is because the line between using “skill and experience” and discretion is often blurry and the regulations offer some guidance but not too much..

For example, the employee interfaced with customers in significant manners.  He was responsible for helping them select employees.  He also maintained crane rental records and helped facilitate projects by selecting materials, tools, and machinery to meet the needs and demands of certain projects.

The employee tried to denigrate his job responsibilities.  He portrayed himself as simply doing retail sales work or being a cog in an assembly line-type operation.  The Company countered that he was working in a capacity crucial to vital business operations.   The Court agreed with the company, concluding that what the employee performed work that was at the “heart of Sunbelt business.”

As stated above, the Court also agreed that the employee exercised discretion.  The employee possessed and exercised the ability to resolve a wide range of customer and technical issues. The court also found that the employee was “responsible for directing and overseeing all operators and truck drivers.  The Eleventh Circuit did caution, however, that ordinary dispatchers, such as many of those working in the trucking and bus industries, did not utilize discretion but were rather only following prescribed techniques and standards.
 

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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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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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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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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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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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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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Under the Fair Labor Standards Act, ("FLSA") compensatory time is statutorily prescribed for governmental-entity employees.  29 U.S.C. 207(k). Generally, compensatory time is impermissible in the private sector.  The US Department of Labor (“DOL”), however, does allow the use of so-called “time-off plans.”  Time-off is very similar to compensatory time but involves leave taken during the same pay period.  Time-off plans are only allowed under the following conditions:

1) The employee must get time off at time and one-half (1 ½) for all hours over forty (40) worked in a week; and

2) The employee must take the compensatory time off during the same pay period in which it was accrued.

Dunlop v. New Jersey, 522 F.2d 504 (3d Cir. 1975), vacated on other grounds, 427 U.S. 909 (1976); Wage Hour Opinion No. 913 (December 27, 1968) (employer may not credit an employee with compensatory time even at time and one-half rate if taken subsequent to the pay period in which the overtime is earned).

For example, an employee who works fifty (50) hours the first week of a biweekly pay period can take off fifteen (15) hours in the second week and, accordingly, only work twenty-five (25) hours during the second week without the cash payment of any overtime.  If the fifty (50) hour week occurs in the second week of the pay period, then the overtime premium must be paid in cash.

It appears that an employer can require that an employee accept compensatory time in lieu of being paid cash overtime provided the boundaries of the individual pay period are not exceeded. The US DOL has approved, by Opinion Letter, a procedure by which an employer could lay off an employee for a fixed number of hours in the second week of the pay period in order to offset the compensatory time earned in the first week of the pay period. 

In another Opinion Letter, the DOL held that the FLSA does not prohibit an employer from maintaining employee salaries at a constant level by controlling the number of hours worked; approving “layoff” concept in second week of a bi-weekly pay period.  By analogy, an employer could “order” an employee to take compensatory time in the second week of the pay period, as opposed to being required to pay cash overtime, even if the employee preferred to be paid in cash.

The kicker for employers is that if they allow private sector employees to bank overtime and the DOL comes in, albeit for an unrelated reason, and discovers that, the agency will deem it a violation and order the employer to pay the employees their “overtime.”  The DOL may also (and probably will) impose penalties for late payment of wages and/or improper payment of overtime.
 

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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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