I have many clients that want to comply with the Fair Labor Standards Act (“FLSA”) and pay workers properly, especially for overtime. However, I have found that even the most well-intentioned employers sometimes will not consider the nuances and vagaries of overtime calculations under the FLSA and a class action is the result. In this recent case, a proposed class of Nissan workers allege that they were shorted on overtime as the employer did not correctly compute overtime under the piece rate system that was utilized to pay workers. The case is entitled Ayala et al. v. Nissan North America Inc., and was filed in federal court in the Middle District of Florida.

The workers allege that this errant practice was applied at many dealerships throughout the country, hinting (not so subtly) at a wide-ranging class action. The Complaint alleges that “by controlling its dealerships through detailed policies and procedures, Nissan itself has made certain that the plaintiffs and the putative class are similarly situated by having virtually the same job duties, pay provisions, factory training, and a manual that specifically states will apply to all dealerships within the United States.”

The theory of their case is that the workers were paid for each unit produced or service rendered, without consideration for the amount of time, i.e. working time, it took the worker to make the unit. Based on this alleged fundamental error, the workers failed to receive the minimum wage and if they worked more than forty hours in a week, they did not get overtime. They want to include all workers at all dealerships in Florida; such a class could conceivably include more than 740 workers.

The lead plaintiff also alleged that the Company did not pay workers for extra tasks, which, if job related and compelled by the employer, would also be compensable working time. These duties included cleaning, being compelled to sit for meetings and trainings, as well as preparing paperwork. These preliminary and postliminary tasks are also the subjects of numerous FLSA class actions.

The Takeaway

This is a very dangerous case for the employer. Piece workers still must receive overtime, regardless of how much per piece they receive, and the FLSA regulations provide detailed guidance on how such calculations must be done. If the Company’s legal analysis shows that the computations were faulty (or non-existent), this case must be settled quickly. The preliminary work allegations are equally troubling. Best thing here is to cut the losses and get out early.

The sooner the better…

I have blogged many times on prevailing wage issues and, of late, have commented on the unwarranted expansion of these laws. Well, here’s another one. The State of New York enacted an enhancement of its prevailing wage law, effective January 1, 2022, which will amazingly (or sadly) make more construction projects come under the umbrella of this law.

This law, denominated as Budget Bill, S.7508-B A.9508-B, was signed into law on April 3, 2020. It specifies that prevailing wages must be paid on “covered projects.” Such projects are those where “construction work done under contract which is paid for in whole or in part out of public funds where the amount of all such public funds, when aggregated, is at least thirty percent of the total construction project costs” and “where such project costs are over five million.” Until now, a project was deemed a prevailing wage job when a public entity was a signatory to a construction project; the second necessary factor was that the project had to “benefit the public.”

For starters, the law expands the definition of “public funds.” It used to be money spent by a public plastic black toolbox with tools over white backgroundbody but now it may include, for example, payment of money, whether directly or indirectly, by a public entity on behalf of a contractor or subcontractor or developer that is not subject to repayment. It can also include savings of all kinds, such as securing rents, interest rates or insurance costs lower that the market rates. It could also mean tax abatements and exemptions that are now also subsumed under the “funding” umbrella. If certain costs are waived or forgiven, that is also now considered a source of public money.

The law also expands the definition of a “public entity.” Now, a number of entities are added to this definition, such as the “State,” or a “local development,” “corporation,” or a “municipal corporation,” or an “industrial development agency,” or “state, local or interstate or international authorities” and, lastly, “any trust created by any such entities.’ This is an incredible (and I use that word deliberately) augmenting of this definition, showing a focused intent to make the prevailing wage laws applicable in a more sweeping fashion.

The Takeaway

Many of these provisions are vague and capable of different interpretations. For example, the statute mandates prevailing wages be paid when the “total project costs” are more than $5,000,000. The law, however, does not define “total project costs” or “construction project costs.” Thus, employers and developers are left to guess whether certain line items or costs are includible in gauging whether the threshold has been met.

I know this much—the New York Department of Labor and, I daresay, the New York courts, will interpret this law in a very liberal (i.e. pro-employee) manner, with the goal of increasing prevailing wage coverage, thereby raising wages for workers. The interpretation of a prevailing wage statute is often within the peculiar province of a DOL so such (expansive) interpretation will likely be given weight by the courts. On these issues, I suggest (and I have often done it) seeking informal advice from the DOL prior to a project commencing, so the contractor has some heads-up on these difficult issues of statutory interpretation.

Get out in front of it…

When two entities are a joint employer, or could be deemed as such, they must aggregate the hours worked by employees at each facility in a given week. If those hours exceed forty in total, then overtime must be paid. Sometimes, the entities either believe they are not a joint employer or, simply, do not want to pay overtime. A new FLSA class action seeks to test this truism as two Texas CBD shops are being sued by workers who allege the employer(s) avoided overtime by paying workers with two separate checks. The case is entitled Ross v. Sherman Hemp LLC et al. and was filed in federal court in the Eastern District of Texas.

The Complaint alleges that the owners used employees to work at both stores and would direct them to transfer inventory between the stores. The plaintiffs assert that since the entities have common ownership and shared employees (a sign of joint employer status) the hours worked had to be aggregated for overtime purposes. The Complaint alleges that “even though defendants jointly employed plaintiff, defendants refused to combine the hours plaintiff worked for both Sherman Hemp, LLC and Ashten, LLC each week for overtime purposes.”

The Complaint alleges the workers received two paychecks, one from each entity, as to avoid paying overtime. The Complaint alleges that the Company did this “as if Sherman Hemp, LLC and Ashten LLC were totally independent and unrelated companies.” The result was the continuous working of overtime hours, without proper payment, according to the allegations.

The plaintiffs’ lawyer claims the defendant owners own other franchise locations in Oklahoma, where this same protocol is supposedly in effect. They may seek to add other sites and workers to the case. The lawyers also are delving into whether the parent company knew that these franchisees were operating in this manner. The plaintiff lawyer stated that “if we find some sort of knowledge of and or awareness of these shady business practices then we will definitely be looking at looping them into the litigation as well.” In this regard, the parent Company has in excess of eighty (80) operations.

The Takeaway

The joint employer doctrine is a dangerous thing for employers. It may seem tempting to pay employees with two checks from the different entities to avoid overtime, whether on purpose or not, but if certain factors are present, such as interchange of employees, which is the biggest factor in these determinations, there will be a problem. Common ownership, by itself, is not dispositive, but other commonalities (e.g. Employee Handbook) coupled with interchange, will virtually militate such a finding. Here, if the parent is brought in, that is big trouble!

Then, it is a matter of doing the math…

When the DOL audits an employer and finds wages due, the employer, albeit unhappily, then pays the wages and (hopefully) changes its errant ways. There are times when the employer cannot or will not pay and then the agency or the employees need to go after the assets of the Company and/or owners/officers personally. State governments are always looking for ways to get workers their money and the State of Washington has just taken a new, bold step in that direction.

On January 1, 2022, the Washington Wage Recovery Act ( “Act”) becomes effective. This law provides that employees can attach a lien on employer property for unpaid wages owed. The goal is to try to secure payment of the wages by placing the lien on the property and this may be effected even prior to the wage claim being filed or if it is pending. Starting in ten days, an employer in Washington State may receive notice of the lien being filed even prior to it getting notice of the lawsuit or claim filed with the Department of Labor.

The law has an expansive definition of employer. Also included (and this is the trend) are indirect employers if the entities share some kind of commercial, business relationship, such as to label the second entity as acting in the so-called “interest of” the direct employer. Such secondary “employers” might include staffing agencies, subcontractors, and alleged joint employers. The law does not address whether personal liability attaches if there is a contention that the failure to pay was willful.

Significantly, the law excludes vacation pay or severance claims. Someone could recover interest, as well as liquidated damages, attorney fees and statutory penalties. The ability for an individual, as opposed to the state DOL, to secure damages for statutory penalties is also an unwarranted departure from traditional state law(s), like here in New Jersey. The law also excludes “highly compensated employees” from its coverage. Interestingly, the law shortens the statute of limitations in this State, as the statute is three years for a wage claim but the wage lien is confined to only two years from when the wages were allegedly owed to the employee.

The Takeaway

This is a dangerous development because it puts more pressure on employers to pay or settle wage claims, even though they may have no merit. If a lien is filed, it becomes a “stain” on the employer’s financial posture and just does not look good. Employees may be motivated to file or threaten to file such liens to compel payment of anything they claim they are owed. The best defense is to ensure that an employer’s compensation practices (in whatever State they are situate) are compliant with the law. I am a big believer in these self-audits and have conducted dozens of them, reporting back to the client in a bullet pointed, no legalese, assessment of their compensation policies.

You know, an ounce of prevention…

I do a lot of prevailing wage defense, both of general contractors and subcontractors on construction projects. A difficult, very nuanced, very gray area of the law. One danger that lurks not that far under the surface is, for a general contractor (GC), if one of their subs does not pay prevailing wage and the agency, state or federal, decides to go “upstream’ against the GC.

Well, a new statute in New York has just made that infinitely easier for a Department of Labor. What plastic black toolbox with tools over white backgroundthe law does is to basically negate the concept of joint employment as may apply to a GC and its subs and almost makes it a matter of strict liability. In September 2021, the State passed a law which is meant to assist construction workers getting their wages by asserting liability against a contractor when a subcontractor fails to pay properly. Significantly, there is no analysis of whether these employers would be deemed a joint employer.

The law takes effect on January 4, 2022. It transfers liability to “contractors,” a term broadly defined. It also broadly defines a “construction contract.” It does establish a shorter limitations period, i.e. three years, rather than the New York regular six-year statute. It also allows contractors to bring lawsuits against the subcontractor to recover wages paid to the subcontractor’s employees.

In the Justification for the statute, the Legislature noted that the goals are to guarantee that “construction workers are quickly able to collect unpaid wages” and to “create[e] an incentive for the construction industry to better self-police itself in turn.” It allows the contractor to require submission of certified payroll records and other information to help the contractor assess whether the subcontractor is complying with the prevailing wage laws.

The Takeaway

What can a contractor do to protect itself? It can require, in any contract with its subcontractors, for them to submit the certified payrolls on a weekly basis, with proof, such as payroll records, that the proper wages/fringe benefits were paid. The contractor can also insert an indemnification provision into these contracts, but I guess that is only as good as the particular subcontractor is solvent. A contractor might insist on proof of solvency or ability to pay prior to entering into the contract in the first place, but that might not prove practical.

Start by being aware this overreaching law exists…

Many employers believe that if an employee (or many employees) perform a tiny amount of work, or work-like activity, before their shifts, that brief off-the-clock, activity cannot be “working time” under the FLSA. This is the essence of the de minimis defense. Well, they are wrong, as a recent case illustrates. The case also is a cautionary tale for employers to be proactive in forestalling the prospect of major liability (and legal fees). The case is entitled Peterson v. Nelnef Diversified Solutions, LLC and issued from the Tenth Circuit Court of Appeals.

In this case, the employees spent approximately three minutes per day starting their computers andPicture of Clock Daylight Savings Time logging in to various programs. This was done pre-shift so the employees could be ready to answer customer questions when their shift commenced. The employees commenced a class action under the FLSA, with more than three hundred (300) workers in the class. The lower court concluded that the activities were work related, as they were integral to the primary function of the representatives. However, the trial court would not award damages as it held that the de minimis rule applied and thus the activities were too fleeting or ephemeral to warrant compensation.

The federal appellate court affirmed the legal conclusion rendered below that the activities were integral and therefore were compensable. Tellingly, the Tenth Circuit rejected the trial court’s reliance on the de minimis defense. The Court looked at how often the employees performed the activity, how hard (or not) it was for the employer to track/capture the time, as well as the number of employees involved and the total amount of possible damages.

The Court rejected the Company defense that it could not track or gauge the amount of working time involved. It also ruled, importantly, that the aggregated amount of the possible wages owed was not insignificant, although for each individual employee, the time worked might not be all that much. The Court noted the activity was a consistent routinized component of the employees’ activities and that the activity had to be performed on a regular, rather than, an isolated basis.

The Takeaway

It seems odd, or counterintuitive, that a few skimpy minutes per day could add up to big trouble for the employer, but yet it is true. It is the regularity of the activity that is key here, as well as the implicit, in this case, element of employer compulsion. Plus, it was not just a single employee who had to boot up, but hundreds. That spells liability for the employer. The same principles would also apply to people who work at home and have to boot up before their shift officially begins. The answer here is simple—if the activity is required and integral to the primary job, the employees should clock in first and then boot up.

Pay the few minutes now, rather than thousands later…

The issue of whether expense reimbursements should be included as “wages” when computing the regular rate for overtime has been around for many years. Sometimes, an employer will seek to “disguise” wages as expenses in order to avoid overtime. Sometimes, expense reimbursement is just that. These principles are possibly to be explored by the US Supreme Court where an employer has sought to have the Court rule that per diem payments are not wages and non-includible in the regular rate. The case is entitled AMN Services LLC v. Verna Clarke et al., and has been submitted to the US Supreme Court for consideration.

The Company has argued that the Ninth Circuit erred when it found these per diem payments includible. The Company argues the Circuit has created a new and unworkable standard for employers to follow on this issue, which will result in “massive overtime liability.” The Company contends that this “tail-wagging-the-dog approach makes little sense and is certainly not compelled by the FLSA, which actually requires very nearly the opposite.”

The Ninth Circuit adopted a so-called “payment-function” test to make this determination. This test looks at the: 1) the relationship between payment and hours; 2) if the Company did not incur any costs but nonetheless made the reimbursements; and, 3) if the employer mandates that the employee attests to the expenses incurred, whether or not the costs were incurred. The plaintiff nurses argued that other courts had utilized this standard and there was no “conflict” created within the Circuits that required the Supreme Court to become involved. The plaintiffs also allege that the expenses payments were tied to hours worked, which converted these payments to wages.

The Company argues that it is not obliged to include these per diem payments as its compensation practices comply with the FLSA regulations on this issue. Under those regulations, expense payments can be excluded from the regular rate if these expenses are incurred while in the course of employment, if they were reasonable in the amounts paid and if the expenses were appropriate for reimbursement. The Company asserts that the payments were for meals, lodging and other expenses incurred in the employees doing their jobs, i.e. advancing the employer’s interests. The Company also rejected the employees’ reliance on the U.S. Department of Labor’s Field Operations Handbook, which approves the payment-function test, contending that this Handbook has no legal weight or authority.

The Takeaway

If the decision stands, health care employers might respond by hiring fewer nurses and/or reducing their wage rates so, even with these errant monetary inclusions, their labor costs do not rise. The Ninth Circuit test is, simply, unworkable and places intense pressure on employers to try to adjust their compensation practices to this standard. It will also lead to lots of unwanted litigation. The Company’s brief stated that this decision created “an untenable situation that only an FLSA plaintiffs’ lawyer could love.”

As if we needed that…

There are so many independent contractor cases that go against the employers that when one goes the other way, it is a big deal. That is what has just happened with a Costco contractor who alleged the Company misclassified her to avoid paying her overtime. The case is entitled Williams v. Costco and issued from the Ninth Circuit Court of Appeals. The appellate court affirmed a lower court decision, where the Judge found that the Company did not have sufficient control over her activities and her roadshow job was not integral to the Company’s business.

These workers are in-store demonstrators; they provide sample products to customers who could then purchase those products. The Ninth Circuit wrote that “she presented no evidence to dispute Costco’s factual assertions and no evidence to suggest that, notwithstanding the distinctions identified by Costco, roadshows are sufficiently similar to Costco’s other selling activities to fall within its usual course of business.”

The plaintiff argued that Costco controlled her work activity by mandating that roadshow booths were to be manned at all times, as well as giving guidelines for appropriate dress. The Company responded by asserting that it told its suppliers, not the roadshow workers, that the booths should be staffed at all times and that the demonstrators had to (naturally) be dressed appropriately. The Court agreed, also rejecting the contention that the plaintiff’s direct interactions with Costco staff without a supplier supervisor being present meant that Costco controlled her working conditions.

The Ninth Circuit also disagreed that the plaintiff’s work was integral to Costco’s main business. The lower court had concluded that the work of a demonstrator was not within the “usual course of business.” Further, as the Company did not control work hours or working conditions, the (very onerous for employers) ABC test did not apply. Lastly, the plaintiff’s claim that Costco jointly (with the supplier) employed her because she had a Costco badge and was admonished for leaving her merchandise display station also fell on deaf ears.

The Takeaway

I like this holding because the Court, quite importantly, made the finding that the work of this person was not integral to the business of Costco. Many independent contractor defenses founder on that issue, such as a trucking company hiring a truck driver and deeming him an independent contractor, because driving a truck is an integral part of the business if a trucking company, as oppose to someone fixing a hole in the roof. Also, the Court emphasized the lack of control, giving short shrift to the contention that wearing a badge of the entity shows control.

All in all, a good roadmap…

I have written about call center cases, which involve allegedly unpaid working time, many times. Well, they continue to pop up. In a recent case, a class of workers claim that they were expected/required to handle customer calls after the end of their shifts, during their break times, as well as performing additional off-the-clock tasks. The case is entitled Amador et al. v. Kemper Corp., and was filed in federal court in the Northern District of Illinois.

The employees allege they worked 2-3 hours per week of this uncompensated time, The Complaint alleges, simply, that “Kemper knowingly and deliberately failed to compensate plaintiff and the putative class members for all hours worked and the proper amount of overtime each workweek on a routine and regular basis during the relevant time period.” The lead plaintiff was a customer service representative, whose duties involved answering phone calls from insured people as well as brokers, reviewing their policies/billing history and then processing payments and/or resolving the inquiries and customer issues.

The employees allege they were compelled to be at their computers and ready to service the customers at the instant their shift commenced; they claim, however, it can take a half-hour to log on to the computer and access the appropriate programs. They assert in the Complaint there is also a lengthy process to sign off at the end of the shift or for lunch/coffee breaks. They charge that this reduces their allotted break times. They also claim they had to forego their lunches or other breaks if call volume was high, or risk facing discipline.

The plaintiff also claims the workers were not compensated for fixing allegedly frequent computer issues and equipment problems. The lead plaintiff also alleges the employees were forbidden from hanging up on anyone and had to finish every call, even if a call took them beyond their assigned end time, after which they had to perform the shutting down process, which also took time. As the Complaint asserts, “regardless of the length of the calls, plaintiff and the putative class members were directed to clock out at the end of their shift before finishing any after call notes that needed to be entered, and then perform a lengthy shutdown process.”

The Takeaway

These working time cases can creep up on an employer and sometimes it is difficult to ascertain whether preliminary or postliminary activities are compensable. Employers need to be aware, however, that if they require or compel employees, explicitly or implicitly, to come in early in order to be “ready” when their shift actually begins, that is a recipe for disaster. Have the workers come in but pay them for the time.

Or pay them later, in court…

I have handled many commission cases, where someone sues, claiming they are owed commissions. The key issue in such cases is to determine if there is a written contract and then to ascertain what the vesting provisions for the commissions are. After all, in most, if not all States, commissions do not become “wages” and therefore owed to the worker, until the conditions precedent in the contract have been met. A recent case, where the person was laid off due to COVID-19 issues and yet could not collect commissions based on the contract, makes this point emphatically. The case is entitled Peak v. TigerGraph and was filed in federal court in California.

The employee, a salesman living in Massachusetts, had a contract with his employer that set forth that the compensation was comprised of a base-salary and commission. The employment relationship was designated as “at will.” Lastly, the contract recited that California law would apply. The parties then replaced this first contract with another that deemed commissions to be earned when the Company received payment in full from the customer.”

In May 2020, the employee received work from a client, where he would have realized significant commission from. He sent the news to the Company COO and the next day, he was advised that he was being “laid off due to the financial impact on the COVID-19 pandemic.” He was the only sales representative laid off and he did not receive his anticipated commissions. He filed suit, alleging breach of contract/covenant of good faith and fair dealing, intentional interference with contractual relations, civil conspiracy, and other violations

The Court examined the contract and concluded there was no breach as no commission had been due and owing because none of the commission was earned prior to his layoff. The Court also rejected the implied covenant of good faith and fair dealing argument; the employee argued he was being separated when “on the brink” of receiving the commissions. The Court noted the “at will” nature of the employment relationship as laid out in the Agreement and the Company’s commission plans advised employees that “as a reminder, employment “is on an at­ will basis (except as otherwise provided by law) and may be terminated with or without cause, and with or without notice, at any time.”

Thus, because the contract was clear and the employee voluntarily agreed to it, the Court held that the Company “cannot be held liable for breach of contract or breach of the implied covenant for doing what they were expressly permitted to do by the terms of the employment agreement: terminate [employee] for any reason.” The Court also noted the terms of the contract, which paid commissions only upon the Company being paid, which it had not been on these various transactions.

The Takeaway

This is a great lesson for employers. An employer cannot control if or where it will be sued, state court, federal court, an administrative agency, but the employer has control over the most important aspect of a case—the factual underpinnings. If the written commission agreement is drafted carefully (e.g. active employment when commissions vest provision) and explicitly provides for when commissions are earned and what happens to the commissions of an employee who is separated (voluntary or not), the Employer is putting itself in a great position to successfully defend a lawsuit.