Over these last years, there have been a number of lawsuits by domestic employees against their employers and I have defended some of those.  They present a unique kind of case as these domestic servants are usually on very close terms with their employers, not the typical employer-employee relationship, but then, something happens and it goes south.  A recent illustration of this is a real estate executive who is now responding to an overtime lawsuit from his housekeeper of many years.  The case is entitled Lopez v. Barnett et al., and was filed in federal court in the Southern District of New York.

The plaintiff claims that she was paid on a weekly basis and worked many overtime hours, including her allegation that she sometimes worked more than eighty (80) hours per week.  The Complaint alleges that “throughout her employment, defendants required Lopez to work, on average, between 65 and 86 hours per week, yet paid her on a weekly salary basis that failed to compensate her at 1.5 times her regular hourly rate for hours worked over 40 each week.  The housekeeper worked as a live-in from 2010-2017 and then as a regular employee from 2018-2020.

The plaintiff had to clean nine bedrooms and eleven bathrooms; she also did the laundry, ran errands, as well as cooking and cleaning up from dinner.  She also cared for three of the ten family children.  She claims she started work in the morning and would work through the day, into the night many times, sometimes finishing almost at midnight.

The suit is brought under the Fair Labor Standards Act, as well as the New York Labor Law, the Domestic Workers’ Bill of Rights and the New York Wage Theft Prevention Act.  Her attorney
Louis Pechman, gave his view on the situation, asserting that “over the last few years we have seen an uptick in cases involving domestic workers employed by high-net-worth families who are not paid overtime even though they are working extraordinary hours.  Unfortunately, there is a common misconception that housekeepers, nannies and other domestic workers can be paid on a salary regardless of hours worked.”

The Takeaway

The way to defend these cases is to attack the often inflated claims of the hours “actually” worked.  It has been my experience, in defending these cases that the domestic worker has large chunks of time during the day in which they can follow their own pursuits and are not working or expected to be working.  I think big holes can be punched into these extreme claims, if you know how to use the hammer.

Big holes…

The Trump Administration has tried to help business and employers in many ways, including loosening USDOL rules (and views) over many things.  One topic of special interest on this front has been on the independent contractor issue.  The USDOL has taken another step now in that direction, by proposing a new rule on the classification of workers as independent contractors and this new rule would be a distinct deviation from prior issuances.

The proposed rule sets forth a five-factor test that will focus on the “economic reality” of a given relationship between a worker and a putative employer.  Two of these are so-called “core factors,” which are the most significant in this calculus.  They are: 1) the control that a worker has over their work; and, 2) the worker’s potential for profit or loss.  The rule then posits that if both of these militate the same conclusion, then “their combined weight is substantially likely to outweigh the combined weight of other factors that may point towards the opposite classification.    As the proposal states, “in other words, where the two core factors align, the bulk of the analysis is complete.”

The USDOL noted that the emphasis of these factors is a departure from judicial views on this important issue.  The agency explained that it emphasized these factors because they are essential in determining whether an individual is in their own business or they are reliant on another entity for their livelihood.  The DOL views the control factor as involving analysis of whether a worker can decide when to work, or not, and for what length of time.

These regulations jump off from earlier issued (4/2019) DOL guidance that sought to find workers in the on-demand’ or sharing’ economy” were independent contractors under a six-part test.  The agency now explains that it is memorializing the test it had set out in an Opinion Letter, the goal being to set down a standard, uniform analysis, rather than the diffuse and numerous tests that have been applied.

As to the other major factor, profit and loss, when a person can earn a profit or suffer a loss based on that person’s “exercise of initiative (such as managerial skill or business acumen or judgment) or management of his or her investment in or capital expenditure on, for example, helpers or equipment or material to further his or her work” that will facilitate an independent contractor conclusion.  If someone “is unable to affect his or her earnings or is only able to do so by working more hours or more efficiently,” they will likely be found to be an employee.”  Thus, if a worker earns more money by working fifty, as opposed to forty, hours, this factor would point to “employee” status.

The Takeaway

There is now a very short comments period, thirty days, instead of the usual sixty.  It is clear that the agency, i.e. the Trump Administration, wants to finalize the rule before December 31.  Even if the rule does go into effect, a new Congress could throw it out pursuant to the Congressional Review Act.  But, I like it anyway.

It’s a good start…

When people are employees, the deductions that may be made from their wages are limited and many items that would be classified as employer business expenses cannot be deducted from worker pay.  When individuals are independent contractors, these otherwise forbidden deductions may be effected because of this supposed non-employee status.  When those two worlds collide, there is litigation, as evidenced by the refusal of a New Jersey federal judge to dismiss a proposed class action, finding that the workers supported their assertions that they were not true independent contractors, making the deductions possibly unlawful.  The case is entitled Ortiz et al. v. Goya Foods Inc. et al., and was filed in federal court in the District of New Jersey.

The Judge concluded that the sales representatives “have pled sufficient factual allegations that plausibly state that plaintiffs are employees of defendants, that the sales commissions under the broker agreement constituted plaintiffs’ wages, and that the wages earned were not paid in full, as required by the PWPCL.”  The workers alleged that they were misclassified, alleging that the Company placed significant control on the manner in which they performed their services.  Thus, the commissions the workers were paid were actually “wages,” they claim and thus the deductions, such as when a customer did not pay an invoice, were unlawful.

The Company argued that there were no “employment contracts” under which the Company was obligated to pay “wages” to the workers.  The Company also contended that the contracts also explicitly disclaimed “any employment relationship, and thus, make clear that they are not employment contracts to pay wages.”  The Judge rejected this argument because he found that the mere disavowal of an employment relationship was not determinative.  Neither was the fact that the contracts provided for payment of commissions, as opposed to “wages.”

The Judge also rejected the Company’s contention that the deductions were allowed by the broker agreements.  The Judge found that, “taken as true, the allegations of the amended complaint suffice to establish that defendants violated the PWPCL by reducing wages earned by plaintiffs.”  The Judge did not credit that these workers only earned the alleged wages after deductions were made from their gross commissions.

The Takeaway

I think the Company has interposed, an interesting, if not novel defense to this action, which may have (or will get) traction.  I know that proving a worker is an independent contractor is often a challenge for the putative employer and the traditional arguments often fail.  This new defense may provide a vehicle to short-cut those traditional defenses and inject something brand new, something, which if successful, would be the “magic bullet” for the employer that all defense-side practitioners are looking for.  The Company has filed a motion for re-consideration on this case.

Let’s see what happens…

Last year, in August, the State of New Jersey enacted the Wage Theft Act (“WTA”) which strengthened the wage hour protections for employees across the State, including expanding the statute of limitations from two years to six years.  As might be expected, almost immediately, an enterprising plaintiff lawyer sought to amend his lawsuit to extend the statute of limitations to the maximum allowed by the law.  That effort has failed; a decision has issued that emphatically and clearly held that the WTA is not retroactive.  The case is entitled Magee v. Francesca’s Holding Corp., and was filed in federal court in the District of New Jersey.

The Court started with the maxim that New Jersey courts have long followed a general rule of statutory construction that favors a prospective application of statutes.  The Court noted that it should look at and start with the legislative intent and then had to determine whether the retroactive application of the statute would be an unconstitutional interference with vested rights or a manifest injustice.

The Court noted that when the legislature dealt with the issue of whether a statute should apply retroactively, the expression of that intent must be given effect unless a compelling reason existed to not to do so.   The Court found nothing in the statutory language that suggested retroactivity.  The Court noted that the Supreme Court of New Jersey has held the phrase “take effect immediately” implies that the statute should not be given retroactive application.  The Court observed that the Supreme Court of New Jersey held that “had the Legislature intended an earlier date for the law to take effect, that intention could have been made plain in the very section directing when the law would become effective.”

The Court noted that the WTA amendments “shall take effect immediately, except that section 13 shall take effect on the first day of the third month following enactment.”  Thus, given the presumption that statutes are presumed to apply prospectively and the interpretation by the highest New Jersey court of laws that take effect “immediately,” the legislative intent was that the law was not retroactive.

The Court acknowledged that a law might be retroactive if it was “curative,” meaning that it was designed to “remedy a perceived imperfection in or misapplication of a statute.”  The Court again looked to the guidance from the New Jersey Supreme Court which has stated that an amendment is curative if it does “not alter the act in any substantial way, but merely clarified[s] the legislative intent behind the [previous] act.”  The Court noted that the amendment herein changed the statute of limitations from two years to six years.  The Court agreed with the Defendants who contended that the amendment was not curative given that it is a “300 percent expansion of the limitations period, likely implicating dozens of additional claims and a commensurate 300 percent increase in damages.”  Thus, the Court found the change was not a “curative” amendment as defined by the New Jersey Supreme Court.

The Takeaway

This is an eminently correct and logical decision.  This opinion was very well reasoned and hearkened back continually to pronouncements of the New Jersey Supreme Court as to when, or not, a statute should be given retroactivity.  Ironically, I almost feel sympathy for all the plaintiff lawyers out there who were gleefully looking to take advantage of this change in the law.

Too bad…

 

I have often blogged about the thorny issue of bonuses under the FLSA and when those bonuses must be included in the regular rate of employees for overtime purposes.  The crucial test is whether the bonus is discretionary, meaning it need not be included, or is “promised” to employees, meaning it does have to be included, thereby raising the regular rate.  A recent federal appellate court decision fleshes this principle out in an interesting manner.  The case is entitled Edwards et al. v. 4JLJ LLC and issued from the Fifth Circuit Court of Appeals.

The Court ruled that the employees i.e. the plaintiffs, must prove that the bonuses were not discretionary and therefore includible.  This is significant and is an issue of first impression.  With that said, the Court reversed a jury verdict in favor of the Company and held that the men were not properly compensated because the first bonus at issue was not discretionary and should have been figured into the regular rates of the employees for overtime.  The three Judge panel observed that the Court had never addressed the issue of which side had the burden of proof on bonus inclusion into overtime rates.

The employees had contended that two bonuses should have been included.  On the first bonus, the possible payment was promised in writing and set down with a pay scale.  On that basis, the Court ruled that these bonuses were “nondiscretionary under the FLSA, and 4JLJ ought to have included them in the regular rate.”  The Court noted that “based on the performance bonus agreement, and the complete absence of any evidence contradicting the universal applicability of the agreement, a reasonable jury could not have concluded that 4JLJ maintained discretion over the amount of performance bonuses.”

The second bonus was different.  The lower court had held that the second bonus, the one that was paid out when the next phase of a fracking operation was completed, was not includible because the workers had not proven it was non-discretionary.  The Court reasoned that the payment was not promised in writing, in any document or policy, and the workers could not show any evidence that “elucidates how employees came to expect stage bonuses, who determined the amount, when the amount was determined, whether all employees typically received such bonuses, or whether the amount ever varied.”  As the plaintiffs had not shown that the bonus was issued at a designated time for a fixed amount, the Court would not overturn the jury verdict on this issue.

The Takeaway

This is a great decision.  It starts to turn the pendulum back on the disturbing trend of over inclusion of different kinds of monies in employee regular rates.  I also applaud the shifting of the burden onto the employee plaintiffs to prove that the sums were ascertainable and promised to the employees, rather than contingent or discretionary.   There are lessons here for employers to learn.

The case is a road map…

Often, attorneys advise clients on FLSA issues, such as exemption issues.  Then, a lawsuit ensues and the employer may want to use the defense that it relied in good faith on its attorney’s advice.  The potential problem that creates is that the plaintiffs may then seek production of the otherwise confidential communications on this issue between lawyer and client.   A recent case illustrates how dangerous this can be as a federal Judge has rejected an employer’s bid not to turn over communications between its officials and its lawyers on the classification issue.  The case is entitled Brown et al. v. Barnes & Noble Inc., and was filed in federal court in the Southern District of New York.

The Judge rules that the employer waived the attorney-client privilege concerning the communications

when the employer injected the good faith defense to the proceeding to shield it from liability.  The Judge noted that there was a “longstanding line of precedent holding that a defendant asserting a good faith defense has waived privilege over communications which have a bearing on the defendant’s state of mind.”

The employees had filed suit in 2016, alleging they were misclassified.  They have, interestingly, been unsuccessful on three occasions in securing class certification.  The issue here concerned the report generated by a consulting firm which analyzed whether the café managers were exempt from overtime.  The Company refused to produce this as well as communications with its attorneys and between executives and the attorneys where they discussed the conclusions of the report.

The Company tried a different approach in its defense to this motion.  The Company asserted that the VP, HR, was the “one” who made the classification decisions/analysis and this did not involve a reliance upon counsel.  On this basis, the Company argued that this meant that its attorney communications were and should stay privileged.  The Judge disagreed.  The Judge ruled that the documents were pertinent and the plaintiffs should be able to see them and ascertain whether the VP, HR acted in a manner contrary to the advice of counsel.  That might undercut the “good faith” defense.

The Takeaway

Employers must be acutely aware that when they interpose a good faith defense, that, by definition, injects the decision making process of management officials into the equation.  If that defense involves communications from their attorney, those communications or the letter or memoranda that frames the lawyer’s opinions are in the mix and may be discoverable.  Here, the Company sought to avoid that by asserting that the HR official made the decisions independently.

Can’t have your cake and eat it…

I have written several times about employees working from home, e.g. telecommuting, and how employers must carefully keep track of their hours to avoid unauthorized overtime.  There are situations, however, that arise regarding unanticipated work and how employers should track and pay for this.  The USDOL has now assisted in this endeavor, as it issued guidance for the tracking of unscheduled work hours.  The agency has done this through the vehicle of publishing a Field Assistance Bulletin to agency field personnel.

The thrust of the advice is that employers must allow employees report work they performed but which was not originally scheduled.  The Wage Hour Administrator offered the following observation on this reporting procedure by asserting that “if an employee fails to report unscheduled hours worked through such a procedure, the employer is generally not required to investigate further to uncover unreported hours.”  The obligation of the employer is to pay for unscheduled time when the employer knows the time was worked.  The employer may have access to records showing (possibly) that the worker was doing work outside of scheduled hours, such as data showing when company issued computers or electronic devices were logged onto or utilized.

The Administrator made clear that although this guidance dealt with the issues raised by the new teleworking environment businesses find themselves in, it also applies to other kinds of telework or working remotely arrangements.  She noted that “due to the coronavirus pandemic, more Americans are teleworking and working variable schedules than ever before to balance their jobs with a myriad of family obligations, such as remote learning for their children and many others.   Today’s guidance is one more tool the Wage and Hour Division is putting forward to ensure that workers are paid all the wages they have earned, and that employers have all the tools they need as they navigate what may, for many, be uncharted waters of managing remote workers.”

One commentator has suggested that employers be aware that such claims may arise and that employers need to develop protocols that prevent these claims from arising in the first place.  She noted that employers need to develop a mechanism by which employees can report this off-the-clock work and seek approval for its payment.  This has two salutary benefits; the first is that employees get paid for bona fide work they did and, secondly, of equal importance, it provides employers with a built-in defense in case outrageous (or inflated) claims of work hours are made.

The Takeaway

Employers must be proactive and come up with a procedure to track this unscheduled time.  This could be a real landmine for unwary employers.  I am all about closing loopholes that employees try to climb through in efforts to sue their employers for allegedly unpaid wages.  The employer must also issue a policy forbidding unauthorized overtime, just to be on record with that.

An ounce of prevention is worth thousands of dollars in liability…

The FLSA contains a number of provisions that enable employers to manage, if not reduce, overtime costs.  One of these is called a pre-payment plan.  Under a Pre-Payment Plan, an employer pays anticipated overtime in advance in order to maintain the employee’s wage or salary level constant from pay period to pay period.  Excess payments made for short work weeks are treated by both the employer and the employee as a loan or cash advance to be repaid either by offset against future overtime earnings or by refund when the employee is terminated.

Under the FLSA, employers must usually pay employees their straight time and overtime compensation earned in a particular work week must ordinarily be paid on the regular pay day for the period in which the work was performed.  The US Department of Labor (“USDOL”) through a pre-payment plan, has approved a limited exception to the weekly requirement for overtime payment.

For example, an employer and employee may agree that in any work week in which the employee works less than forty hours, the employer will advance to the employee the difference between the amount equal to his regular rate of pay for forty hours and the amount he would have received if he had been paid only for the number of hours he worked.

Under these USDOL tenets, if, for example, an employee is paid $10 per hour, he would receive $400 for a 40 hour week. Under a Pre-Payment Plan, if the employee worked 36 hours, and would normally receive $360, he would still receive the full $400.  The $40 difference would be treated as a loan and “banked” against future overtime wages.  If the employee subsequently worked two (2) hours of overtime, he would be entitled to time and one-half of the $10 rate, i.e., $15 per hour, for a total of $30 in overtime payments.  Under the Pre-Payment Plan, however, the employee would not receive the $30 in cash in the week in which he actually worked the overtime, as he would have already received it under the Pre-Payment Plan.  In this example, a credit of $10.00 would remain in the “bank.”

There is no issue concerning the openness and mutual agreement to this arrangement, obviating the need for any executory agreement to implement this pre-payment Plan.   The USDOL, through an Opinion Letter, has opined that the employer and the employee must “agree” on the Pre-Payment Plan, but the nature and form of such agreement are not specified.  By analogy, employers who place employees on a “fluctuating work week” arrangement are not required by the USDOL to obtain signed agreements from the affected employees.  It is sufficient that the employer, by policy, advise the employees that they will be paid pursuant to the fluctuating work week method.

The Takeaway

The concept of a pre-payment plan arrangement fits well with an employee where the nature of his work is sporadic; it can be very busy for some/several days in a week and then tail off to nothing or it can be busy for several weeks and then tail off to nothing.  There may be situations where the employer wishes to retain the Employee’s services and also wants to provide a stable/steady income for him.  The pre-payment arrangement accomplishes both goals.

The irony is that, under this arrangement, the employee is (very likely) overpaid…

 

There have been many cases brought recently focusing on the compensability of security checks and in these days of temperature checking for COVID, we expect to see many more.  Some of these cases have gone for the employer and others for the employees.  In a recent case seeking compensation under the New Jersey Wage and Hour Law (“NJWHL”), N.J.S.A. 34:11-56a et seq.,employees sought compensation for time spent undergoing mandatory post-shift security screenings at an Amazon facility and for time spent on meal breaks.  The Company relied upon the United States Supreme Court’s decision in Integrity Staffing Solutions, Inc. v. Busk (Busk I), 574 U.S. 27 (2014), which held that similar security screenings were not compensable under the federal Fair Labor Standard Act (“FLSA”).  The Company asserted that the NJWHL should be interpreted in the same manner as the FLSA, but the Court ultimately rejected that contention.  The case is entitled Vaccaro v. Amazon.Com and was filed in federal court in the District of New Jersey.

New Jersey Silhouette in OrangeThe plaintiff alleged that she must wait among hundreds of other warehouse employees to pass through security after clocking out at the end of each shift.  This check included walking through a metal detector and placing personal items on a conveyer belt to be scanned via X-ray.  If additional scrutiny was deemed necessary, the employee must then submit to a mandatory “secondary screening” for a physical search of the person.  The plaintiff also claimed that because the Company subjected employees to the same security procedure should they want to leave the building for lunch (as well as the remoteness of the facility) many employees do not leave the building, although they do get a thirty-minute lunch period.  The plaintiff asserted that this means employees cannot engage in their own pursuits at lunch, making that time compensable as well.

The Court noted that neither the New Jersey Supreme Court nor any other New Jersey court has addressed the issue of whether security screenings are compensable under the NJWHL or whether the statute incorporates the Portal-to-Portal Act’s exclusions regarding “postliminary” activities.   The Court then “predicted” that the New Jersey Supreme Court would hold that time spent undergoing mandatory security screenings at the end of the workday would be time that the employee was “required to be at his or her place of work” and was therefore working time under the New Jersey Administrative Code section that mandated compensation for “all time” the employee was “required” to be at work.  NJAC 12:56-5.2(a).

The Court, however, rejected the claim on compensation for lunches because employees allegedly could not leave the building.  The Court concluded that differing from the other mandatory screenings at the end of the workday, which were compelled in order to leave the premises and benefitted only Amazon, the act of undergoing a security check during the course of the workday was the employee’s choice because they wanted to eat lunch outside of the premises.  In other words, it benefitted primarily the employee, not Amazon.  Thus, the Court held that time spent on meal breaks during the course of the workday were not “hours worked” under NJAC 12:56-5.2(a) .3.

The Takeaway

This is a bad decision.  Waiting on line for security checks has nothing to do with the primary job of the employee and is not integral nor indispensable to that job function.  I think the State should adopt the Portal to Portal Act, for consistency with the FLSA.  With that said, I am thrilled about the portion of the decision relating to lunch as the NJDOL has for years taken the position that lunch was compensable if the employees could not leave the premises.

I’ll take what I can get…

I have handled a number of cases involving Section 7(i) of the Fair Labor Standards Act (“FLSA”) which provides an exemption from overtime for commissioned employees working for a so-called retail/service establishment.  One of the major hurdles for an employer in claiming the exemption is the necessity to prove that the employer is in a “retail” industry or business.  In this regard, the US Department of Labor (USDOL) had published, as part of the regulations, a ”partial list of establishments” that it deemed as not being retail and another “partial list of establishments” that “may be recognized as retail.”  To say the least, these regulations provided little guidance and were badly outdated.  Well, this has now been fixed as the agency has removed these lists from the regulations and announced that all establishments will be judged under the same standards, which will allow for a totally new construct (over time) as to the meaning of “retail” for this exemption.  The agency noted that the deletion of these lists will also reduce confusion, as the regulation specifying businesses that “may be recognized as retail” did not impact the analysis as to whether a certain business was/was not a retail business.

The Department has held that businesses must have a “retail concept.”  29 CFR 779.316.  A retail business usually “sells goods or services to the general public,” “serves the  everyday needs of the community” and “is at the very end of the stream of distribution,” disposes its products and skills “in small quantities,” and “does not take part in the manufacturing process.” 29 CFR 779.316; 29 CFR 779.318(a).

The first deleted section, 29 CFR 779.317, was the non-retail list.  This list included businesses such as dry cleaners, tax preparers, laundries, roofing companies, travel agencies, blue printing and photostating establishments, stamp and coupon redemption stores, and telegraph companies.  The problem was that there was (with few exceptions) no reasoning or explanation given as why these businesses lacked a retail concept.

The DOL also announced in 1961 a list of almost eighty types of businesses that might be considered retail and amended that list in 1971 to remove “valet shops” from the list, but with little or no reasoning behind that decision.  This “may be” list included businesses such as coal yards, fur repair and storage shops, household refrigerator service and repair shops, masseur establishments, piano tuning establishments, reducing establishments, scalp-treatment establishments, and taxidermists.  Tellingly, the agency gave no reasoning for the inclusion of these businesses on the “good” list.

The Takeaway

 I have struggled for years with these illustrative lists as I did not want to advise clients in a manner that was contrary to these “good” and “bad” lists, as I knew the power and influence that these regulations (actually, any FLSA regulation) have on federal courts.  The lists almost negated the need or ability to engage in an analysis of the “retail” issue on its own merits.  This revision simplifies the issue, makes it “easier” for a practitioner to advise employers on this crucial issue and takes this set of regulations into the modern day world.

A good result all around…