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

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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In December, I blogged about off-the-clock work in my post Unreported, Off-the-Clock Work.  Off-the-clock work includes meal break time, and issues arise when employees work during these breaks, or claim that they work during these breaks, but are not paid.  Recently, an Ohio federal judge decertified a class of employees who alleged that their employer’s meal break policy violated the FLSA.  The judge decertified the class action suit because the workers’ experiences were too diverse to justify the class. 

The case, Creely v. HCR ManorCare Inc. et al., was filed in the U.S. District Court for the Northern District of Ohio, the case number is 3:09-cv-02879.

The employer, HCR ManorCare Inc., (“HCR”) has more than 44,000 hourly employees.  A class of 318 nurses, licensed practical nurses, certified assistants, and admissions coordinators claimed that employees missed meal breaks and were not properly compensated because HCR failed to  ensure that employees were paid.  Specifically, the plaintiffs claimed that HCR failed to train employees on how to report incidents where they worked during meal breaks, and even in some instances, actively discouraged employees from doing so.  The judge however, decertified the conditional class because the claims presented varying accounts of what instructions these workers received on claiming wages earned while working through meal breaks (since wages were automatically deducted for meal break time). 

Although this class was decertified, this decision demonstrates the overriding importance for employers to maintain reasonable procedures for employees to report ostensible work performed during meal times.  To avoid incidents like this, employers should ensure that employees are properly trained to report their time and managers are keenly aware of their employees working, or seeking to work, through lunch.

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In a matter of first impression, the Northern District of Illinois determined that maids and house cleaners employed by third parties are protected by the Fair Labor Standards Act (“FLSA”).  In reaching this decision, the court held such workers are not exempt from overtime by the “domestic service” exemption of the FLSA.  The case is entitled Arenas v. Truself Endeavor Corp. d/b/a Garret/Juarez Cleaning and is pending in the Northern District of Illinois.

The underlying action was brought by ten cleaning and janitorial workers who claim that they worked for Truself Endeavor Corp. (“Truself”), a company that provides cleaning services for private homes, and were not paid minimum wages and overtime.  Truself moved to dismiss the complaint based on several theories including an argument that the employees were exempt from overtime pursuant to the domestic services exemption.

The domestic services exemption excludes from overtime protection any worker “employed on a casual basis in domestic service employment to provide babysitting services or an employee employed in domestic service to provide companionship services.”  The district court rejected this argument and held that the domestic service exemption “applies by its terms only to babysitting and companionship.”

The Arenas case provides a strong indication that the courts are wary to broaden the scope of the domestic service exemption to include additional household functions.  Employers in the janitorial services industry should review their pay policies to ensure that they are compliance with federal and state law.
 

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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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The U.S. Department of Labor (“DOL”) has recovered $213,000 in back wages for 1,028 foreign students who were employed at a plant owned by Hershey Co. The foreign students were placed at the plant as part of the State Department’s Summer Work Travel Program. The DOL reached an agreement to settle the matter with SHS Group, LP (the company that hired and placed the students), the Council for Educational Travel-USA (the entity that acted as the students’ sponsor), and Exel (the company that operated the facility at which the students worked).

The DOL investigated the plant in response to a complaint filed by the National Guestworker Alliance on behalf of 7 student workers.  The DOL found that these foreign students were not receiving minimum wage or overtime pay as a result of the “excessive housing costs” deducted from their pay.  In fact, the foreign students claimed they earned $1 per hour after deductions for their housing.

While the DOL found that the foreign students were not being paid properly, the regulations do, however, permit employers to deduct the “reasonable cost” of housing from employee paychecks.  In such situations, the employee may be paid partly in cash and partly in room and board.  The question of whether such deductions may be made, as well as how much money can be deducted from the employees’ pay, is quite subjective and has been left open to interpretation.  The general rule is that employers can deduct housing costs from employees' pay if: (1) the deduction does not exceed the actual cost to the employer for the lodging; (2) housing is “customarily furnished” to employees; and (3) the employees' acceptance of the housing is voluntary.

Employers should be careful that any deductions for housing expenses meet the three (3) criteria discussed above.  As illustrated by the DOL’s recovery on behalf of the foreign students, an employer can be subject to significant liability for any improper deductions. 
 

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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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One employer defense (one that is not often able to be raised) to a FLSA collective action is that the employees are independent contractors.  In the insurance industry, perhaps more than others, this defense had been interposed, with varying results.  Another stone has been added to the defense wall, as a federal judge has dismissed an overtime action, finding that the insurance sales agents were independent contractor.  The case is entitled Daskam v. Allstate and was filed in the Western District of Washington.

The independent contractor analysis is a totality test, in theory.  Some factors could militate employee status.  Indeed, in this case, the court recognized that certain components of the relationship could show employee status, but, in the end, the court viewed the relationships as being sufficiently similar to others found to show contractor status, as to warrant dismissal.

The court noted that “at some point, Allstate may go too far toward controlling the 'when, where, why and how' of selling insurance products and again revert to the position of employer…but based on the record presented, however, the court finds that Allstate has not yet gone too far.”

Under the FLSA, the test for independent contractor status is deemed the “economic realities” test. Under that more flexible construct, the entire fabric of a relationship is examined by a court to gauge if the person is economically dependent on the entity and whether sufficient control is exerted.  There had been such a judicial analysis done in 2000, but the court noted that circumstances may have changed and a new analysis was required.

The judge, however, concluded that the same result should obtain.  The takeaway here, for any business in any industry, is that if there is an absence of operational control and the individuals can do business with whomever they want, the result should be that the person meets the independent contractor test.

Under any statute or set of regulations.
 

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I attended an interesting seminar today, given by a United States DOL official.  The program focused on the application of the Fair Labor Standards Act to entities and organizations that work with disabled individuals, to mainstream them if possible and, also, to provide some income for them for the tasks that are assigned to them.  These employers are able to pay what is referred to as a "sub-minimum wage" for this work, not the $7.25 per hour otherwise mandated.

Section 14, 29 USC 214, of the FLSA covers these workers.  Part 525, 29 CFR 525,  of the Code of Federal Regulations spells out in greater detail the rights and obligations of employers in this industry and what they may do/not do.  As these are (probably universally) non-profit employers, operating on razor-thin budgets, any assessed/alleged deficiency could be devastating, because if the employer is not properly paying the sub-minimum wage,. the measure of damages would be the difference between the wage paid and the current $7.25, for every hour worked.

Some of the more "traditional" FLSA issues, i.e. what constitutes working time, travel time issues, exemption issues are also subsumed in these audits, so it is imperative that these employers scrutinize all of their compensation practices when facing an audit, not just those issues (of which there are many) that pertain to the sub-minimum audit.

Unlike most DOL activity these days, which is primarily complaint driven, these audits are done usually in the form of an entire industry survey, or of all such employers in a given geographic area, without a complaint instigating the audit.  I have good reason to believe that such an audit wave is In effect at this time, so an internal audit, assessing any issues/problems, is a very good idea.

An ounce of prevention....

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A plaintiff raising FLSA claims must show that an employment relationship existed between himself and the putative employers, no matter their number.  Often, a plaintiff will name an individual supervisor or manager as a defendant, in addition to the company.  In the recent case of Montero v. The Brickman Group et al, a District of New Jersey judge outlined what it means, or does not mean, to be an employer under the FLSA. 

Herein, the plaintiff named an individual manager as being someone who "controlled and managed the terms and conditions of employment for employees who worked at Brickman, "including but not limited to their compensation..."   He also alleged that he questioned the manager as to why he was not receiving overtime and expressed a concern that he was not being properly paid.

On these facts,  ruling on a Federal Rule of Civil Procedure 12(b)(6) Motion, the Court dismissed the action against the supervisor.  The Court emphasized that the plaintiff failed to show that the manager had any operational control over him, as to expose him to liability under the FLSA as an employer.  The Court also noted that the only basis for these statements made in the Complaint was "information and belief."

The lesson here is that individual managers who are named in a Complaint can be kicked out early in a case, especially if they are a second-level or higher manager whose relationship to the employee is tenuous.  Only those supervisors who determined the hours worked and how the employee was paid or classified might potentially be on the hook for wages as an "employer."  Tactically, I believe this is a good move for defense practitioners as it shifts the momentum in the case and pushes back.

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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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Affiliated Computers Services, Inc. (“ACS”), a company owned by Xerox, has agreed to settle a wage and hour dispute with call center employees for $4.5 million.  The call center workers claim that ACS failed to record and pay them for their time spent logging onto their computers each day. The employees allege that ACS’ failure to record this time resulted in them being denied their regular pay as well as overtime pay.  The case is entitled Bell v. Affiliated Computer Services and was filed in the District of Oregon.

At first glance, the Bell settlement is mind-boggling considering that the time spent turning on a computer likely only takes a few minutes each day and does not seem like “work.”  However, there has been a significant amount of litigation on this issue over the past year, and in many instances, these cases have resulted in large settlements.

Employers defending these off the clock cases have principally relied on the de minimis exception set forth in the federal regulations.  This exception provides that “ insubstantial or insignificant periods of time outside scheduled working hours may be disregarded in recording time.”  However, the de minimis exception is only applicable where the work involved is for such a short duration that it cannot be precisely recorded for payroll purposes.

The courts have refused to issue a standard amount of time that would automatically qualify as de minimis.  Rather, the United States Supreme Court and several circuit courts of appeal have determined that periods of time ranging from 7 to 10 minutes is considered de minimis.  The federal regulations, however, provide a more conservative view of de minimis work - - less than 5 minutes each day.

Employers can expect more off the clock cases dealing with “preparatory” work duties, such as turning on a computer at the beginning of each shift, in the near future.  Employers should review their time recording policies in an effort to avoid potential liability.  More importantly, employers should carefully scrutinize what, if any, pre-shift or post-shift activities their employees may be engaging in, as those activities may later be claimed to be “work.”
 

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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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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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In order for an employee to be exempt, he must receive a set salary (as well as performing the requisite duties) and that salary cannot be subject to improper deductions.  In a recent case, a warehouse manager asserted that improper deductions and the recording of her hours had destroyed her exempt status, entitling her to overtime.  The federal court rejected those assertions, as well as her contention that requiring her to comply with the company policies and procedures also undermined her exempt status.  The case is entitled Sander v Light Action, Incorporated and was filed in federal court in the District of Delaware.

The court granted the defendant’s summary judgment motion, finding that the employee was paid a guaranteed annual salary of $60,000 and she could also receive additional compensation (which is allowable under the FLSA regulations).  The court noted that the FLSA regulations posed "additional obstacles" to theory that the employee was not salaried.  The court asserted that 29 CFR 541.604(b) allowed an employer to compute exempt employee's earnings "on an hourly, a daily or a shift basis, without losing the exemption or violating the salary basis requirement," as long as: (1) the employee is paid a guaranteed minimum weekly amount for the salary basis test, regardless of hours worked, and, (2) a reasonable relationship exists between the guaranteed amount and the amount actually earned."  That provision also allowed additional compensation to be paid, as long as the minimum salary was paid.

Thus, the court concluded that the employee was salaried.  The judge ruled that “there is simply no basis in the record to make any finding other than that Plaintiff was paid a guaranteed base of $60,000 annually.”  Therefore, there was no basis to conclude that the employee was not salaried.

The employee also contended that her exemption was undermined because her employer tracked her work hours.  The court rightly rejected this contention, concluding that it is the nature of an employee’s job duties that governs the exemption analysis, not an administrative, ministerial tracking of hours.  The court also rejected the assertion that allegedly improper, partial day deductions, made in nine weeks (out of a total of 156) undermined her exemption,  The employer was able to explain "in careful detail" how the employee’s contentions were factually wrong and did not evidence allegedly illegal deductions.

Two lessons emerge for employers: 1) Simply keeping “time records” for exempt employees does nothing (good or bad) for the exemption analysis; the duties and salary basis test control; and, 2) Partial day deductions must be avoided at all costs; if the employee herein had shown such improper deductions, those actions might have undermined not only her exempt status, but the exempt status of all employees classified as exempt.
 

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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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Last week, witnesses testified at a hearing before a subcommittee of the House Education and Workforce Committee on a proposal by the United States Department of Labor (“DOL”) to extend minimum wage and overtime protections to in-home care providers.  Currently, in-home care workers are exempt from the minimum wage and overtime requirements under the Fair Labor Standards Act (“FLSA”).  The DOL is seeking to modify the law so that in-home care workers who work for third parties, such as staffing agencies, are not exempt from the FLSA’s requirements. Under the new law, as proposed by the DOL, only workers who are employed by households to perform “fellowship” and protection duties would be exempt.  “Fellowship” and protection duties include activities such as playing cards, visiting with friends, and taking walks.

Supporters of the proposed rule testified at the hearing that it would give long overdue protections to vulnerable workers.  In contrast, opponents of the proposed rule argued that it would harm both the workers it seeks to protect and the individuals receiving the care.  The basis for this argument is that the proposed rule change would result in home workers working less hours and thus potentially making less money, and that individuals needing home care would be unable to afford the services.

The proposed rule has resulted in thousands of comments from the public, but in the end, it may not have any significant impact. Nancy J. Leppink, deputy administrator of the DOL’s Wage and Hour Division, testified that half of the states already have laws requiring in-home care workers to be paid minimum wage and overtime.  Moreover, Ms. Leppink stated that almost the entire cost of home care provided to individuals would funded by Medicare and Medicaid, and for this reason, should not have any effect on the level of care.  Additionally, the rule change would not apply to care workers directly employed by households, nor would it require that workers be paid for sleep time.

The comment period for the proposed rule closed on March 21, 2012.  The DOL has not provided a time table as to when it will complete analysis of the public comments.
 

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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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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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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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Doug Weiner and Meg Thering, in the Wage Hour Defense Blog, recently commented on the introduction of the Computer Professionals Update Act in the US Senate on October 20, 2011.  They posit that this is a good development for employers, as employers would be more easily able to classify employees as exempt under the computer exemption.

The new legislation would expand the coverage of the exemption to individuals who work in a "computer or information technology occupation, including, but not limited to, work related to computers, information systems, components, networks, software, hardware, databases, security, internet, intranet or websites, as an analyst, programmer, engineer, designer, developer, administrator or other similarly skilled worker."   Also, employees who direct the work of individuals performing these duties would be exempt.

I welcome this development.  I have had numerous cases and matters for clients where the focus has been whether certain computer employees were exempt or not.  There are many fine lines in undertaking this analysis, almost as many as there are titles in this field.  The employer is forever placed in the difficult position of having to make a judgment call ion the exemption question and if it is proven wrong. almost astronomical liability is the result, as these workers are often earning very good compensation (whether at an hourly rate or a salary).  To take the more conservative approach and simply treat the workers as non-exempt is not the answer either because although it spares the employer the specter of a possible lawsuit (usually class action) it escalates the overtime outlays that the employer is subject to.

Now, if the legislation passes, employers will not be forced to make what are now very difficult decisions.  I believe employers are, for the overwhelming most part, intent on doing the right thing and complying with the law.  When the law is not easily amenable to reasonable interpretation and forecasting, that desire to comply is hampered.  With this new law, employers may be able to correctly classify computer workers and not have to be stressed out over whether they will be hit with a FLSA class action.

To be continued...

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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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I am pleased to announce that I will be speaking in an upcoming Strafford live phone/web seminar entitled "DOL’s Latest Wage and Hour Enforcement Priorities" scheduled for Wednesday, October 19, 1:00pm-2:30pm EDT.  You are eligible to attend this seminar at 50% off.  As long as you use the links in this email, the 50% off price will be reflected automatically in your transaction. 

Wage and hour compliance is a top priority for employers as a result of the Department of Labor’s (DOL) increased enforcement efforts. The DOL reports that 78% of businesses are out of compliance with wage and hour laws, exposing employers to liability for unpaid wages, penalties and fees.

The DOL’s Wage and Hour Division has introduced several new policy initiatives designed to combat wage hour violations and issued several employee-friendly interpretive guidance documents and amicus briefs.

Employment counsel must understand the DOL’s current regulatory and enforcement landscape and advise employers of steps to take to minimize liability risks. Comprehensive self-audits and effective corrective measures are essential to avoid compliance errors.

My fellow panelists and I will explain current trends in DOL enforcement and best practices for employment counsel to ensure wage and hour compliance. We will review the areas currently targeted by the DOL, new DOL policy initiatives, and strategies for employers to conduct self-audits and correct errors.

We will offer our perspectives and guidance on these and other critical questions:

• What areas are currently being targeted by the DOL's Wage and Hour Division for enforcement?
• When should employers take the initiative to notify the Department of Labor of compliance errors discovered during self audits?

After our presentations, we will take questions.  I hope you can join us.  Here is the link:

http://www.straffordpub.com/products/tlveza?trk=ZDFCT

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In an interesting case, the Fifth Circuit has addressed the issue of whether an employer may take, as an offset, severance payments that were given to an employee under a severance agreement, against an allegation that the employee is due overtime pay.  The Court rejected the employer’s attempt for offset, holding explicitly that such attempts, or other counterclaims, are not allowable in the context of an FLSA lawsuit.  Therefore, the Court reversed the federal district court, which had held that the employee’s potential overtime claim (even including liquidated damages) was not equal to the aggregate compensation she received in the severance package.  The case is entitled Martin v. Pepsi Americas, Incorporated.

The employee was a Route Settlement Clerk, an hourly job and was entitled to overtime pay.  When she was promoted into a supervisory position, she was changed over to salary and did not then receive overtime.  A layoff ensued two years later and she agreed to accept a severance package.  In exchange, the employee signed a Release in which she agreed to waive her rights to sue under a number of laws as well as agreeing not to file any lawsuits/actions related to her employment.  Notwithstanding the agreement or the compensation that she enjoyed receiving under it, the employee filed an overtime action under the FLSA, as well as state law claims for fraudulent misrepresentation.

The Company moved quickly to dismiss, asserting an offset theory.  The Company showed that the severance benefits aggregated to almost $24,000, while the total theoretical claim for the overtime, plus the liquidated damages, would be approximately $19,000.  On that basis, the district court dismissed the case.  Plaintiff appealed.

The Fifth Circuit found that the offset was illegal under the statute.  The Court stated that “generally speaking, courts have been hesitant to permit an employer to file counterclaims in FLSA suits for money the employer claims the employee owes it, or for damages the employee’s tortuous conduct allegedly caused.”  Although not outcome determinative, the Company had claimed the offset as an affirmative defense, rather than a counterclaim.

In sum, the Court held that the severance monies were not given as wage payments, whether in advance or in any other form, but were for a releases of claims.  The Court found that the issue of whether the employee breached her agreement with the Company to not sue was for another court or forum to determine, but did not affect her FLSA claims.

This is a dangerous precedent for employers, but one which they must be keenly cognizant of. It is not sufficient to “merely” secure a Release which includes the FLSA; such settlements.  Releasing FLSA claims, must be first approved by a court to be legally sustainable.  An ordinary Release will not bar future FLSA claims.
 

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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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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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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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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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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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In another independent contractor case involving exotic dancers (i.e. strippers), a federal judge has ruled that the individuals engaged by a Washington, DC club were employees.  This is a significant victory for these employees and marks yet another victory for similarly situated workers in the adult entertainment industry.  The case is entitled Thompson v. House, Inc. and was filed in the federal court for the District of Columbia.

The judge ruled that the company, which is a gentleman's club, did in fact control the activities of the dancers sufficiently to evidence an employment relationship, rather than an independent contractor relationship.  This ruling settles the liability issue and now the only thing remaining is the calculation of the plaintiffs’ damages.

The plaintiff’s counsel opined that he “would like to think we are effecting positive social change here, but it remains to be seen whether it will have an impact or not..”  He hoped that since the company would have to pay damages, it would change the manner in which it treated these individuals, i.e. as employees.

The dancers were paid by the hour (more evidence of control), earned $30-50 per hour (which shows control)  and usually worked four shifts of ten hours per week; they had to be on-stage for thirty-minute periods.  Some of them earned $300; others earned up to $1000 per shift.  The club also maintained a number of work rules that forbade swearing, fighting, biting, scratching, doing drugs or fondling dancers on stage.  The employer also compelled the dancers to pay both it and the disc jockey.  They were also penalized for calling in sick or being tardy, according to the allegations.  If true, these were all indicia of “control,” which cuts against independent contractor status.

The club maintained that it never enforced these policies as well as asserting that the fines were not always recovered.  The club further defended by stating it only exercised putative controls which were mandated by the laws of the District of Columbia.

There have been a number of similar lawsuits under the FLSA and I believe virtually all of them have resulted in findings of employee status for the strippers.  Here, it was the control element that doomed the employer but if it had overcome that hurdle, the employer would then have had to shown that the dancers were in their own businesses.  That is typically the issue on which the employer’s defense founders, as many supposed independent contractors are shown to work only for one entity, meaning that they truly are employees.

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This past week, Asurion Inc. settled a class action brought under the Fair Labor Standards Act in which employees alleged that the company improperly failed to pay them for time spent turning on and shutting down their computers each day.  According to the complaint, Asurion allegedly maintained a policy and practice of requiring employees to arrive at their work stations before their scheduled start times and perform “critical tasks.”  The alleged tasks, for the most part, consisted of turning on their computers and logging into the company’s network.  Plaintiffs allege that Asurion did not compensate them for this time.  The case is entitled Benson et al. v. Asurion LLC et al. and was filed in the District Court for the Middle District of Tennessee.

There has been significant litigation over the past several years regarding the payment of wages for “preparatory” work duties.  Most of these lawsuits arose in connection with the putting on and taking off of protective gear prior to the start of an employee’s shift.  The courts, including the United States Supreme Court, have consistently found such time to be compensable.

With that being said, employers would face a logistical nightmare if they were required to pay employees for the 2 to 3 minutes spent each day turning on their computers and logging into the network.  Luckily, the regulations provide for a de minimis exception. This exception provides that    “ insubstantial or insignificant periods of time outside scheduled working hours may be disregarded in recording time.”  However, the de minimis exception is only applicable where the work involved is for such a short duration that it cannot be precisely recorded for payroll purposes.

The courts have refused to issue a standard amount of time that would automatically qualify as de minimis.  Rather, the United States Supreme Court and several circuit courts of appeal have determined that periods of time ranging from 7 to 10 minutes is considered de minimis.  The federal regulations, however, provide a more conservative view of de minimis work - - less than 5 minutes each day.
 

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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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On March 22, 2011, the United States Supreme Court held in Kasten v. Saint-Gobain Performance Plastics Corp., that the Fair Labor Standards Act (“FLSA”) prohibits employers from retaliating against employees who make verbal, as well as written, complaints regarding a violation of the statute. The Supreme Court did not, however, specify whether a “complaint” must be made to a government agency, or whether an internal complaint is sufficient to trigger the protection of the FLSA.

In Kasten, the plaintiff sued the company for allegedly terminating his employment in retaliation for verbally complaining to company officials about the placement of its time clocks. The Western District of Wisconsin ruled that the plaintiff’s informal complaint did not constitute protected activity under the FLSA. In affirming the District Court’s decision, the Seventh Circuit ruled that the FLSA’s use of the phrase “file any complaint” indicates that the statute only protects written complaints.

The Supreme Court rejected the Seventh Circuit’s interpretation of the phrase “file any complaint,” and held that “considering the purpose and context” of the FLSA’s anti-retaliation provisions, both verbal and written complaints should be protected. The Court further provided that the following standard should be considered when determining whether an employee has filed a complaint: “[A] complaint is filed when a reasonable, objective person would have understood the employee to have put the employer on notice that [the] employee is asserting statutory rights under the [act].”

In light of this decision, employers can expect an increase in retaliation claims under the FLSA. To protect themselves from such claims, employers should treat potential verbal complaints under the FLSA in the same manner as they would verbal complaints under federal and state anti-discrimination laws.

Specifically, employers should consider: (1) implementing and notifying employees of a complaint procedure for claims of wage and hour violations; (2) training managers and supervisors on how to identify protected complaints; and (3) advising managers and supervisors to consult with Human Resources prior to taking any adverse action against an employee who has previously complained.
 

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It is often difficult to claim that security officers are exempt from overtime under the Fair Labor Standards Act.  However, in a recent federal lawsuit, four officers who were employed by a private, so-called, paramilitary force that provided security services at the atomic research laboratory at Los Alamos were ruled to be executive employees and thus were exempt from overtime.  The judge held that the primary duties of these men were managerial and they were not acting as first responders the majority of their working time.  The case is entitled Maestas v Day & Zimmerman, LLC and was filed in the District of New Mexico.

The plaintiffs were two lieutenants, a captain, and a major.  They tried to have a class certified; the judge refused to conditionally certify the class but instead focused on the employer’s simultaneously filed motion for summary judgment/dismissal.  That motion sought to eliminate the possibility not only of the “class,” but of any individual plaintiff gaining a recovery by arguing that any/all potential class members, starting with the named plaintiffs, were not entitled to overtime as exempt employees.

The officers claimed that only functioned as first responders, whose mission was to safeguard and protect the atomic facility, all forty-three square miles of it, as well as the inhabitants of the facility and the atomic secrets stored there.  Thus, the case, interestingly, presented the tension between two FLSA regulations, one stating that first responder classifications are non-exempt, while the executive exemption regulations addressed the issue of the circumstances under which someone’s primary duty was deemed to be supervision/management.

The employer countered by asserting that the officers retained management as their primary duty, even when performing their first responder tasks.  The employer also relied upon (as I have often done) a Department of Labor Opinion Letter that held that employees would still qualify for the executive exemption, notwithstanding that they performed first responder duties provided that they continued to meet all of the tests/elements for the exemption.  Couched in these terms, the judge determined that the officers did indeed retain management as their primary duty.

The evidence showed that the plaintiffs trained employees, assigned work, based on their assessments of employees’ fitness for the jobs at issue, resolved complaints from workers and managed the manner in which security matters and emergencies were responded to.  The judge rejected that the plaintiffs’ contention that, as first responders, they were entrusted with keeping the facility at full readiness, finding that the global mission of the security force—protection of Los Alamos---was separate and apart from the issue of what their primary duty truly was.

The defense of exemption was the magic bullet that wiped out the entire class action.  Nice result if the facts support the theory.

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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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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 “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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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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When employers are compelling employees or “suggesting” to employees that they engage in work-related activities before or after they go on and off the clock, trouble is brewing.  In the latest of these working time class actions, a group of employees working for Lululemon Athletica Inc. have sued the company under the Fair Labor Standards Act ("FLSA"), claiming pay for time worked beyond their normal shifts.  The “work time” at issue is the watching of inspirational DVDs and the taking of exercise classes.  The case is entitled Brown v. Lululemon Athletica Inc. and was filed in the District Court for Northern District of Illinois.

The plaintiffs claim that the company had a system-wide policy on this issue, so the papers filed in court seek a class that may extend to at least three states.  These employees, dubbed “educators,” have alleged that the company, whose primary line of business is yoga-inspired athletic gear/clothing has compelled them to work a number of extra hours each week, which would take all of them into overtime situations and generating considerable liability.

The employees claim that they were required to view inspirational DVDs in their homes and attend mandatory staff meeting on a monthly basis, which took two hours.  They seek compensation for this alleged work time as well.

The employees have filed an amended complaint, where they specify that the possible class encompasses 1,400 current/former Lululemon employees who worked at least two overtime hours per week.  In frightening fashion, the complaint hypothesizes that damages may top five million dollars.

If the employer actually compelled these employees to engage in these activities and the activities can be demonstrated to have some integral connection to their work, there may be liability.  The flip side also applies---if the employees’ positions and their employment would be in jeopardy if they did not partake in these activities, or they reasonably feared their jobs would be in jeopardy, liability might also lie.

The underlying “moral” is for employers to self-audit their compensation practices, particularly as applied to these sideline-type activities, which are often hidden in the compensation radar.
 

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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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Under the proposed Workforce Empowerment Act (S. 3696), introduced in the Senate on August 3,  2010, in-home direct care workers who work more than twenty hours per week will be covered by the minimum wage and overtime provisions of the Fair Labor Standards Act (FLSA).  The bill would amend the FLSA, which currently exempts from its minimum wage/overtime protections individuals who work on a “casual basis in domestic service. 29 USC 213(a)(15).  A companion bill has also been introduced in the House of Representatives.  These workers typically provide assistance to their clients with such activities as bathing and eating.

The proposed bill’s Findings state that in the direct industry “working conditions are often difficult and turnover is high because of low pay, access to health insurance and other benefits, strenuous conditions…”  The Findings also report that 13,000,000 Americans are currently receiving such services and that “two-thirds of older adults will need some form of long-term care at some point in their lives.”

The proposed amendment defines “casual employment” as employment which is irregular or intermittent and which is not performed by an individual whose vocation is the provision of babysitting or companionship services.  Employment will not be considered “casual” if the hours worked in a week, for whatever number of employers, exceeds twenty (20).

Is this an initiative of the Obama Administration?  Any proposed expansion of the coverage of the FLSA is more likely to come from a Democratic Administration in any event.  I know this---there will certainly be record keeping, timekeeping issues if this law goes into effect because many of these workers have significant “down time” during the day, when they are able (?) to have free time to follow their own pursuits.

Are they engaged to be waiting or waiting to be engaged when these “chunks” of down time pop up?  Who knows?  Working time issues are amongst the grayest under the FLSA.  I guess we will see.
 

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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 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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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 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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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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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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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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There is a fine line oftentimes between who is and who is not an employee. This premise especially applies to the issue of “interns.”  As summer approaches, and as jobs may be quite hard for young people to find, there seems to be a rise and we expect to see a sharp rise in companies utilizing unpaid “interns.”  Under the Fair Labor Standards Act (“FLSA”) and state laws, there are definite, specific criteria that a person must fit before they can be deemed an intern and not entitled to (at least) the minimum wage protections of wage-hour laws.

The fear is that employers may view these people as a source of free labor, while using the moniker “intern” to describe them and hopefully not be able to pay them anything.  For example, in New Jersey, there are nine criteria for delineating an intern; the employer must ensure that all nine are met or else the person is an employee.  Under the FLSA, there are six.  Of special note is the requirement that the internship be for the primary benefit of the individual, not the employer.  This may often be a hazy line to draw.

The state DOLs are on to this.  Last year, the New York State DOL investigated many companies’ intern programs to determine compliance with the law.  We are hearing that, on a federal level, there will be more inspections and audits on this issue.  One possible hindrance to these investigations may be the hesitancy of “interns” to come forward and file complaints, as they understand that such complaints might have the untoward effect of endangering future employment opportunities with the company they just turned in.  Although this would be clearly against the law, i.e. retaliation, this is the real world.

Other criteria that probably cut across every state statute/regulation that has addressed this issue are that the internship must be similar to the training given in a vocational school or academic institution and the intern cannot displace any regular, i.e. . paid workers.  Nor can the employer derive any immediate benefit from the “work” of the intern.
 

Remember-if the DOL comes in on this issue, it will not limit itself to an examination of only this issue.  Every other compensation practice will be fair game for scrutiny.

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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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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 Second Circuit Court of Appeals has reversed a lower court and held that a regional director of advertising sales for the Elite Traveler magazine was non-exempt under the Fair Labor Standards Act. The Court rejected the contention that the employee fell within the administrative exemption. The case is entitled Reiseck v. Universal Communications of Miami Inc.

In the 1990s, there was a rash of cases involving inside sales people and whether they fit within the administrative exemption. Courts have held that such employees are “white collar production employees” in that they are really only “producing” the goods of the employer and not engaging in the ancillary, back-office kinds of duties that are deemed administrative under the FLSA. In this case, the Second Circuit continued that line of reasoning.

The Court found that as the primary duty of the employee was selling advertisements to individual customers and not promoting sales generally, the employee was only a producer, not an administrative employee.

The magazine was free and thus advertising sales made up the predominant component of its revenue. There were salespeople who sold advertising space and, significantly, a marketing staff that was charged with the primary function of creating promotional material to increase advertising sales. The Court determined that the employee was not involved with the market creation work, as she was selling specific advertising space and advertising sales were a critical source of revenue, the Court therefore concluded that advertising space was the Company’s “product.”

As the employee’s primary duty was the sale of that product, she was a sales employee, not an administrative employee. This was the Court’s conclusion notwithstanding that there was evidence that Ms. Reiseck developed new clients with the goal of increasing advertising sales generally. Her primary duty remained selling specific advertising space to clients.

I have often commented on the grayness of the administrative exemption. There is a continuing, if you will, eternal, tension between whether an employee is merely producing goods (whatever those good may be) or is performing the more esoteric duties that support and comprise the business. Those duties are administrative, but precise definitions are difficult to come by. Fair warning to the employer----if you choose the administrative exemption, be prepared to defend it (probably in court).
 

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In a January 21, 2010 posting in the New York Labor and Employment Law Report, Joseph Dole reported on a case entitled Young v Cooper Cameron Corporation, recently issued by the Second Circuit.  The case concerned the applicability of the professional exemption to an individual performing engineering design work on sophisticated equipment.  While he had twenty years of experience, he only had a high-school degree.  The court ruled that the employer incorrectly classified him as exempt.

 The issue rose and fell on the absence of a college or higher degree in a specialized field of training.  To me, this is the completely wrong result.  The proposed new professional regulations had sought to allow a claim of professional exemption even without the "degree," if experience and education were deemed to fit the exemption.

The final regulations stepped back from this and hearkened back to the old tests.  They do leave a crack open, attesting that there is the "possibility" that an individual may fit the professional exemption as an attorney, for example, even if he did not go to law school, like, for example, Supreme Court Justice William O. Douglas.  The regulations, however, envision this as a one in a million occurrence and I think, especially in the computer and technology fields,. experience of a professional nature is often supplanting the straight, "pure" education.

In fact, I understand that Bill Gates did not finish college.  Under the rationale of this case and the current FLSA regulations, this billionaire would be found to be non-exempt and entitled to overtime. 

Funny, ain't' it?

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In a recent posting in the Connecticut Employment Law blog,  http://www.ctemploymentlawblog.com/2009/12/articles/wage-and-hour/a-dollar-here-35-mi Steve Lavelle wrote about a recent case in involving the exemption status of Store Managers for Family Dollar Stores.  The evidence showed that the employees rarely, if ever, discharged managerial duties and spent the vast amount of their time in performing duties identical to subordinates and thus their classification as exempt from overtime was erroneous.  He warns that the employer must always be be vigilant about properly classifying employees as exempt or non-exempt.  

I have often advised clients that, sometimes, it is safer to treat titles such as Assistant Manager as non-exempt, from the outset.  Pay them hourly and time and one-half OT, but compute, or "back into" the proper hourly rate by determining the number of hours that will be routinely worked (e.g. 45, 50) in given weeks.  In such a manner, the exempt/non-exempt issue never becomes an issue.

The other option for employers is to enhance the actual job duties of these and similarly titled employees so that they do, insofar as possible, exercise managerial functions (e.g. hiring, firing, input into raise/promotions).  This is harder to do, takes significant managerial oversight and must be monitored.  It can be done, however, and then the person or persons will truly be exempt, whether under the Fair Labor Standards Act or any state wage-hour law.

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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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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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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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