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

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

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

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

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

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

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

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

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

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

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The federal motor carrier exemption applies to drivers, mechanics and other employees whose duties affect safety and who work in interstate commerce.  This exemption applies to truck companies and bus companies.  Any state is free to adopt this exemption, in toto, or to modify it or, in fact, not adopt it at all.

The New Jersey Department of Labor has adopted a version of the federal exemption that applies only to common carriers There is also an exemption, a separate exemption, that applies to bus companies and their employees.  That exemption has caused problems for the employer community so the state DOL is now proposing new rules to clarify when a bus company employer is not required to pay overtime to employees.

The new definition of “common carriers of passengers by motor bus” would now include “any employer which operates an autobus.”  This would establish bright lines so that employers (and DOL investigators/officials) would know exactly whether the employer has to pay overtime.

The DOL issued a communication stating that “the new rule would eliminate any possible confusion among employers and employees with regard to the proper scope of the exemption.”  To its credit, the agency observed that the absence of clear definition of the terms “common carrier" and "motor bus" has caused problems because employers have been unsure (for some time) where the line is drawn between employees who should receive overtime pay and those who should not.

Under the new rule, DOL investigators would need only to confirm whether the Motor Vehicle Commission has classified the vehicle as an "autobus."  Secondly, the investigator would also need to confirm that the proper registration documents are on file.

The lesson for employers, within New Jersey and elsewhere, is to always be cognizant that state law, on exemptions and all other wage hour issues, must be examined, and complied with, in addition to compliance with the Fair Labor Standards Act.  It is not enough to “merely” comply with the federal statute.
 

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

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

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

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

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

I don’t think it does.
 

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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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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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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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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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The issue of claims for alleged working time is on a disturbing trend upwards.  There seems to be no end to the frequency and variety of these claims.  Although the latest case is not in the context of a judicial proceeding, but rather an administrative investigation, the result, and the issues, remain the same.  The US Department of Labor and Norwegian Cruise Line have just entered into a settlement where the Company will pay $526,602 in allegedly owed wages more than two-thousand employees working for the Pride of America cruise ship, based in Hawaii.

The investigation showed that the Company paid straight time for certain work activities, i.e. mandatory weekly emergency drills, without regard for whether these hours brought the employees beyond forty for that week, thereby triggering an overtime obligation.  This included all of the time spent conducting and participating in the emergency drills conducted every Saturday.  Further, as the employer had taken meal and lodging credits against the minimum wage, there were also minimum wage violations.  Other working time included hours spent cleaning cabins between cruises and for chunks of time spent (allegedly) in performing vital preliminary duties, before employees commenced their assigned shifts.

The US DOL District Director (the top DOL official in Honolulu) stated that “employees in many jobs on U.S.-flagged vessels are entitled to the federal minimum wage and overtime protections under U.S. law.”  He continued by complimenting the employer for coming “ into compliance once the issues were identified.”  This means that the Company evidenced that it was ready to now fully comply with wage-hour laws, thus garnering some “good faith” in the settlement discussions with the DOL.

I just posted on another working tine case this week and normally would have looked for another topic.  The veritable explosion of these working time cases, however, has given me much concern and I feel I must trumpet this caution to the business community.  Where an employer compels (in any way, shape or form) employees to perform tasks and treats that time as either wholly uncompensated time or simply “straight time,” liability is sure to be the result.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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On May 9, 2011, the United States Department of Labor (“DOL”) announced the launch of an application for the iPhone and iPod Touch that will record the hours worked by employees and the wages they are owed.  The application will be available in English and Spanish and will allow users to record their regular work hours, break time, and overtime hours for more than one employer.  The application will also enable users to view a summary of their work hours and email the summary of work hours and pay as an attachment.

According to the DOL, “this new technology is significant because, instead of relying on their employers’ records, workers now can keep their own records.”  The DOL has further provided that “this information could prove invaluable during a Wage and Hour Division investigation when an employer has failed to maintain accurate employment records.”

The DOL is currently exploring making the application available for other smartphones such as BlackBerry and Android.  Additionally, the DOL has stated that it intends to update the application to include wage and hour issues not currently provided for, such as tips, commissions, bonuses, deductions, holiday pay, pay for weekends, shift differentials and pay for regular days of rest.

The DOL’s launch of this application only further highlights the need for employers to keep accurate time and payroll records for employees.  Up to now, employees typically contested the records maintained by employers with nothing more than their opinion and recollection of events. This application, however, should enable employees to challenge the calculation of their pay with detailed records and notes.
 

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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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Recently, the United States Department of Labor (“DOL”) issued a white paper or a formal position statement on exemption issues in the financial services industry. I wrote about that in March, when it issued.  This was the first in a series of white papers that will replace the longstanding practice of the DOL responding to inquiries from employers and workers and issuing/publishing these responses, so-called Opinion Letters.  I bemoan the decision of the DOL to stop this informative and educational process.

The agency believes the opinion letter process utilized too many agency resources.  The agency is evidently working on a new initiative that will focus on employee misclassification.  There is a new push and urgency from not only the federal DOL but many state agencies to focus on the infamous independent contractor issue.

Nancy Leppink, Deputy Administrator of the Labor Wage and Hour Division, stated that “the cost-benefit was not there and, moreover, the department has a ‘robust regulatory agenda.’  Another factor was that most requests for opinions emanated from the employer community, rather than workers or labor unions.  This evidently troubled the DOL but it makes a great deal of sense that most requests come from employers as it is the employer who must make initial (and continuing) decisions on classification (exempt vs. non-exempt) as well as working time policies (e.g. on-call, travel).

Employers seek the guidance so that they may comply with the myriad laws and regulations that apply to the numerous compensation issues in the workplace.  Also, the many opinion letters that have been published, on a far reaching and wide array of subjects, give invaluable guidance to employers on such subjects as whether or not the employer must pay exempt employees for snow days to whether the solicitation and sales of mortgages by mortgage brokers qualify as “sales” for purposes of the outside sales exemption.  Now that the agency has adopted this white paper approach, it will only address certain “major” issues as it itself defines those issues.

I regret this agency decision. I believe the public, especially the employer constituency, will be adversely impacted by it as employers will be left again to, oftentimes, make reasoned “guesses” on what is legal for them to do. If they are wrong, they pay in overtime and other damages.  The inquiry-response channel that had formerly been provided by the opinion letter process took much of the guesswork out of some employer decisions.

Now, it’s back again.
 

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

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

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

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

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

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

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What a strange turn of events, a Department of Labor being cited for not paying the prevailing wage. Yet this is exactly what has happened in Delaware. A Delaware state court has refused to dismiss a lawsuit alleging that the state’s Department of Labor has misclassified workers on public works construction products and has improperly enforced the state prevailing wage statute. The case is The Roofers, Inc. d/b/a Tri-State The Roofers v. Delaware Department of Labor and is being heard in the Superior Court in Delaware.

The judge rejected the Delaware DOL’s contention that the company failed to exhaust its administrative remedies before taking the matter into the Delaware courts. The controversy centered around disputed wage classifications.  On public works projects, workers are classified by trades and paid according to the rate for that trade.  Initially, the DOL has the responsibility to assign certain work to certain trades, but a contractor may challenge that determination and that was what happened herein.

The state DOL tried to mount a procedural defense to the judicial action.  The agency argued that the contractor had not appealed its decision “in writing.” Yet, the employer had met with the Secretary of Labor to rebut the allegations, which the court ruled (quite correctly) was the equivalent of sending the required notice to the DOL.  The matter arose when the DOL alleged that the contractor did not pay the rate for sheet metal workers, but rather paid the roofer or carpenter rate (a lower rate) for the work at issue.

In July 2009, the state DOL notified the contractor of the alleged violations, but the letter did not alert the contractor to its right to appeal.  The agency then ordered the prime contractor to withhold funds from the contractor, against the liabilities for the alleged underpayments.  The contractor then filed he lawsuit, which challenged the DOL’s classification system as not complying with the Administrative Procedures Act.  This gimmicky, procedural tactic launched by the DOL has now failed and the case will proceed.  For once, it is a DOL that will be obliged to prove the propriety of its classification procedures.

What goes around, comes around.
 

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

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

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

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

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

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

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The 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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John Ho, in the New York Labor and Employment Law Report, writes that in difficult economic times, employers may resort more to the use of so-called independent contractors, to avoid all personnel/administrative costs affiliated with bringing statutory employees on board.  I agree that this will continue to be a flashpoint in the coming year, but one that hearkens back to longstanding problems for putative employers.

He notes that different statutes have different tests.  There are two things, however, that remain constant throughout all of these different statutory tests--control and proof of an independently established business.  I know, in New Jersey, which uses the A-B-C test, the "C" element, i.e. independent business, is the one that most employers get into trouble on.  The putative contractor must be shown to be in his own business, such as evidencing that the business is incorporated, having liability insurance, business cards, advertising and, most importantly, doing work for more than just one employer. 

If there is not a spread of work done for a number of different employers, a Department of Labor and its sub-divisions, such as Unemployment, and Wage-Hour,  will, in knee-jerk fashion, assert that the person or persons are employees.  That leads not only to demand for payment of back-due premiums, but also, more dangerously, assessment of penalties, which could, under many state constructs, be escalated geometrically.

John's piece can be viewed at  http://www.nylaborandemploymentlawreport.com/articles/wage-and-hour/ 

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

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

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

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

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

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

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

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

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

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

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