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

The New Jersey Assembly Budget Committee has approved legislation to enhance penalties and sanctions against employers who illegally withhold wages and benefits from employees.  The proposed legislation sets forth increased fines, penalties, and damages for wage and hour violations.  Additionally, the bill imposes criminal sanctions against employers who retaliate against employees for reporting and/or complaining of violations.

In addition to the existing damages for wage and hour violations (unpaid wages, liquidated damages, fees and costs), employers will now be fined $500.00 and penalized 20% of the unpaid wages for a first offense.  Any subsequent offenses will result in the same penalties/damages as well as an increased fine of $1,000.  Additionally, violations can also result in an employer’s loss of any license issued by the State of New Jersey.  Finally, retaliating against an employee for bringing a wage and hour claim will be considered a disorderly persons offense.

The bill is intended to deter wage and hour violations by implementing “tougher penalties” while providing employees with additional safeguards for reporting abuse.  The New Jersey General Assembly is expected to vote on the bill this week.
 

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

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

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

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

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

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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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