A big part of being successful in a lawsuit, for the plaintiffs, and their lawyers, is the ability to collect on a judgment that they might actually secure.  I often represent small or, sometimes, struggling business in FLSA collective actions and Rule 23 class actions.  I see, time after time, plaintiff lawyers make totally outlandish demands and I explain to them the financial fragility of the employer and that a settlement of “something,” whatever that may be, is better than winning a big judgment and getting nothing because the business is defunct and there are no assets or very few.  They always don’t believe me and I am always telling them the truth!

A recent case illustrates this point about collectability and the belief/fear by plaintiff lawyers that the employer is looking to escape liability by moving or shielding assets.  A class of home care aides alleged that their employers were getting rid of real estate assets to get out from under a possible $12.2 million judgment in a FLSA case.  The employer has countered by asserting that these are appropriate real estate investments that have redounded to the benefit of the owners, making it more likely they could pay any such judgment.  The case is entitled Podolak et al. v. ComForCare Health Care Holdings Inc. and was filed in state court in Pennsylvania.

The lawyer for the workers sought an injunction in Pennsylvania state court to prohibit the owners from selling real estate assets without first obtaining permission from the Court.  The lawyer for the owners explained that the real estate deals were personal to the family and resulted in them being in a better financial position which would actually augment their ability to pay any judgment.

The plaintiffs’ lawyer has now backed off this allegation as the Judge warned him that he would order him to pay the defense costs if the plaintiffs could not substantiate their claim that assets were being dissipated.  The case involves claims by more than 300 employees that the Company had split working hours between two facilities to avoid paying overtime, i.e. making it seem that employees worked no more than a total of forty hours.  The damages are alleged to exceed $4.2 million, with liquidated damages making that total more than $8 million.  Against this factual predicate, the owners sold a former storefront in a resort town and a condominium that overlooked downtown Pittsburgh, prompting the plaintiffs’ lawyer allegations about dissipation.

The Judge inquired whether the defendants would place sufficient monies in an escrow account so that any judgment would be secured.  The defense lawyer countered by stating that she did not agree with the number (i.e. 12.2 million) that the plaintiffs had estimated.  The defense attorney asserted that a naked accusation is not sufficient to cause her clients to invade their personal finances and set the money aside.

The Takeaway

You see how sensitive plaintiff lawyers are to this (in their minds) shill game.  Especially these days, when many businesses are failing and are going under, plaintiff lawyers may be better off using the bird-in-the-hand approach.  Or risk getting nothing…

 

When the USDOL self-reporting program was announced, I was highly skeptical. Even though there seemed to be assurances that no undue enforcement actions would be taken, it just did not seem that employers would voluntarily subject themselves to such government review. Evidently, I was right. The USDOL has announced that this voluntary compliance program, the Payroll Audit Independent Determination (“PAID”) has produced a paltry $7 million in wages due employees.

The program ostensibly protects employers if they commit inadvertent overtime and minimum wage violations, provided the employer admits the mistake and pays the workers all they are owed. Its detractors argued that the program denied workers the chance to seek greater damages through the normal channels, such as a private lawsuit (individual or collective action) or a more aggressive USDOL audit.

The statistics show that fewer than 100 employers entered the program. Through May 2019, approximately 11,000 workers received back due wages that totaled the $7 million. By contrast, the agency recovered $450 million in back wages through the normal agency enforcement mechanisms. One reason for the reluctance is that employers feared that state Departments of Labor would come after them if they admitted their “guilt” to the federal DOL. This specter makes it far too dangerous for an employer to come forward and enter the PAID. As Paul DeCamp observed, “I think it created an atmosphere where employers are quite rightly concerned that if they settle a matter through the PAID program and their state attorney general hears about it, the employer should expect a visit from state enforcement personnel.”

The counter to this position is that if workers reject the sums that the employer has calculated it owes them, under the program, these workers can then avail themselves of traditional recovery methods. As Patricia Smith, counsel for National Employment Law Project notes, “if they go out and find an attorney who will sue them, they’ve already admitted to not paying overtime, they’ve already admitted to a violation, and all the worker has to do is prove a difference in the number of hours.” She added that the reluctance to join the program is tied to employers “not wanting to admit violations, no matter how minor.”

The Takeaway

I do believe that the intention of the program is laudable. It represents a streamlined method of making sure that underpaid workers receive their wages in a more prompt manner than a long agency investigation or a protracted litigation. But, the worthy goals of the program have not been able to overcome the inherent employer fear that “coming clean” to the government will open a giant Pandora’s Box of further wage-hour problems.

Better safe than sorry…

The USDOL has been issuing a slew of Opinion Letters of late, under the stewardship of Cheryl M. Stanton, Administrator of the Wage and Hour Division. Many of these deal with bonus issues and how these payments can and should be used by employers vis-à-vis their obligations to be compliant with the FLSA. The agency has issued a new Opinion Letter on the issue of car dealerships using incentive payments from automobile manufacturers to satisfy their minimum wage obligations to their salespeople.

Several car dealerships had submitted requests for advice on the issue of these incentive payments. These are monies that auto manufacturers pay to the dealerships to increase sales. Now, the agency is opining that if the dealership and the employees agree to use such third-party payments as wages, those monies will be applied to employer’s requirement to pay the minimum wage.

The Letter stated that “given these facts, the incentive payments will be considered part of the employment agreement and count toward minimum wage obligations by the employing automobile dealership.” The agency now views these payments to dealership employees as comparable to the tips customers give to servers and bartenders. Under the FLSA, a restaurant employer is allowed to consider the tips as wages, thereby lowering the sums that the business itself must pay to its employees, provided that the combination of cash wage and tips equals/exceeds the governing minimum wage.

The agency cautioned that “this does not mean that all payments from a third party are wages under the FLSA. Ms. Stanton asserted that “whether a payment from a third party constitutes wages depends on the terms of the employment agreement, express or implied, and compliance with the other requirements of the FLSA.”

The Takeaway

I have always believed that Opinion Letters serve an important purpose for employers. They are roadmaps and guidelines for businesses who then can fashion their compensation practices within the four corners of the Letter and thereby gain a “safe harbor” if the employer is ever sued on the issues contained within the Letter. They are important not only for the business that obtained the letter, but for other businesses as well who are dealing with similar scenarios.

Knowledge is power and can keep an employer out of trouble…

The last several years have been quite worrisome to me, as a management side practitioner, on the issue of USDOL agency-initiated liquidated damages assessments. It used to be that only when the USDOL took an entity to court did it seek liquidated damages. Then, some years ago, during the Obama Administration, the agency began seeking liquidated (i.e. double) damages. This was a big hammer for the agency and one that it utilized in almost a routine manner. Well, things have changed. For the better.

The USDOL has now issued a Field Assistance Bulletin (“FAB”) on June 24, 2020 in which it stated that it “will no longer pursue pre-litigation liquidated damages as its default policy from employers in addition to any back wages found due in its administratively resolved investigations.” This is a great thing for employers and I believe it is not only right, but it is the fair thing to do.

The point is that the statute does not dictate that liquidated damages be imposed in every case. Although the statute allows for and provides for the seeking of such damages, it is not a mandate. It is also unclear whether this remedy is/was appropriate before a litigation had ensued. That has not precluded the agency, however, from imposing these damages in almost all cases, without (it seems) an analysis or a statement of reasons how the employer’s lapses showed evidence of bad faith or willfulness. . The agency did this as a hammer to “convince” employers to settle quickly for the “original” amount or face the looming specter of double damages. Many employers would accept this situation, rather than risk litigating the case because that, just on fees alone, would be a protracted and daunting proposition.

So, going forward, the agency will not assess liquidated damages unless there is a showing of bad faith or willfulness. Equally important, if the employer is a first-time offender or if the matter involves interpretation of white collar exemption issues and doctrine, no liquidated damages will be assessed. Last, but not by any means least, the agency (e.g. field office) will need to receive the approval from of the Wage & Hour Division Administrator and the Solicitor of Labor.

The Takeaway

As I said, this is right and fair. I am glad to hear this applies to first time offenders and to audits involving exemption issues, which are often murky, especially the administrative exemptions. Of the 300 employers I have defended in DOL audits and investigations, many of the cases involved exemption and I am truly glad to understand that such employers will not face liquidated damages in the future. As good a day as this is, employers beware. If Biden wins, things may revert.

The FAB became effective yesterday. Glory be the day!

The State of New Jersey (and many other states) has started to tighten up laws regarding independent contractor status. One troubling component (to management-side practitioners and employers alike) of this New Jersey initiative is to compel employers to post a notice that explains elements of independent contractor law and, essentially, invites workers to file suits and complaints alleging that they are not independent contractors.

The poster explains that it is a violation of the law for an employer to misclassify its workers. It also explains the A-B-C test, the tri-partite standards in New Jersey, the very difficult tests to meet, for someone to be deemed an independent contractor. These standards are that: a) the individual has been and will continue to be free from control or direction over the performance of work performed, both under contract of service and in fact; b) the work is either outside the usual course of the business for which such service is performed, or the work is performed outside of all the places of business of the enterprise for which such service is performed; and, c) the individual is customarily engaged in an independently established trade, occupation, profession or business.

These standards are hard to meet, especially the third prong, the independent business prong. The putative employer must show that the alleged independent contractor derives roughly one-third of his income from sources other than the putative employer. The person must also evidence some of the traditional indicia of an independent business entity, such as maintaining an office, paying their own insurances (e.g. workers compensation) and perhaps having employees of its own.

There is more. The poster must also enumerate the various benefits and protections that the State wage, benefit (e.g. paid sick leave, paid Family Leave) and tax laws provide to statutory employees. There must also be a delineation of the remedies that misclassified workers may be allowed to recover under State law. Last, but by no means least, the poster must give the contact information for how an allegedly aggrieved worker may file a complaint with the NJDOL. The poster must also notify that there can be no retaliation against a worker who files a complaint with his employer or the NJDOL

The Takeaway

The trend in New Jersey and elsewhere is to make it all but impossible for an entity to engage people or other entities as independent contractors. This is especially true if you seek to engage a single individual in this capacity. The required poster slants any relationship between an employer and anyone else or ay company as one of “employment.” This is particularly troubling given the undisputed reality that many entities, especially single individuals, want to be independent contractors.

Why not just give a list of plaintiff side lawyers as well…

The other day I went to the eye doctor and, before I could go in, an employee checked my temperature. This phenomenon is going to become perhaps a constant fact of life when businesses open, employees return to work and employers want to be sure that they are virus-free and the workplace is safe. That is all well and good but, for employers, the issue arises of whether submitting to such a check is compensable time. That is an uncertain legal issue, for now.

The EEOC has asserted that conducting such checks will not violate the Americans With Disabilities Act, but the Fair Labor Standards Act (or a particular State law) may be different. This issue will come to the forefront especially if employees have to spend several minutes waiting their turn for the check. The FLSA states that activities which are an “integral and indispensable part of the principal activities” of an employee are also compensable. If the employee cannot perform his “regular” job without first engaging in the preliminary activity, then the preliminary activity becomes integral and indispensable.

A starting point for analysis is whether a particular activity is compelled by the employer and for its benefit and whether the principal activity (i.e. regular job) cannot be performed if the preliminary activity is not performed. For example, in a decades old Supreme Court case, where butchers working in a slaughterhouse had to first sharpen their knives, that activity was ruled integral to the main job and compensable. In a more recent case, the US Supreme Court held that Amazon workers going through post-shift screenings to stop theft were not entitled to pay for that time because the screenings were not the employees’ principal activity nor integral to their picking and packaging of Amazon product orders.

An arguable case can be made that temperature screenings protect the workplace against an extreme danger, which could infect the entire workplace, so they are for the employer’s benefit. In this light, such screenings may be analogized to mandating that employees wear protective gear, in order to protect them and other workers; such donning and doffing activities have been held compensable many times.

The counter to that is that catching the virus has, ostensibly, nothing to do with the job being performed. It is not a risk that is confined to or inherent in any particular occupation (excepting health care) but rather is a risk applicable to anyone as people might catch the disease anywhere and from anyone, not just, or only, at work. Thus, a court might rule that there is not the direct linkage to work or the particular job(s) that trigger the duty for an employer to compensate. If the screenings are required by local/county/state health authorities, that might undercut the argument for compensability and there are cases standing for this proposition, albeit in different contexts.

The Takeaway

This is an unsettled question which a court, or courts, may ultimately decide. In that vein, I can see a court coming down on either side of the question. One thing I do know—you don’t want to be the first employer who provides the test case for all other businesses to be guided by. One option may be to pay a designated amount of time, e.g. 10-15 minutes, whether the line is short and the screening takes two minutes or the line is longer and it takes more time. That way, the employer gets out in front of this thorny, vague issue in a proactive manner and provides itself with a defense based in reasonableness and good faith.

Spend a nickel to save a dollar…

When FLSA lawsuits are settled, the matter must go before a federal judge for approval, as opposed to when a “demand letter” is sent and the parties settle prior to suit. There are many elements that a court must look at to determine if the settlement is appropriate and the recent case of Fritz v Terminite, Inc. provides a clear application of those principles. The case was filed in federal court in the District of New Jersey.

The plaintiff was an employee shared between two entities; he located oil tanks and then did work as an Environmental Technician. He alleged that he was paid for his Monday-Friday work at $23 per hour, worked additional overtime hours during the week or on the weekends but was paid straight time for some overtime hours and then a flat fee of $150 for weekend work. Thus, he claimed approximately $15,000 in unpaid overtime.

The parties reached a settlement and submitted it to the federal Judge. Although the Judge acknowledged that the Third Circuit had not adopted a standard for evaluating the settlement of a FLSA action, other federal courts in New Jersey had adopted criteria for evaluating proposed settlement agreements. The bottom line is that the settlement must be a “fair and reasonable resolution” of the FLSA claims.

There are a series of factors used in ascertaining whether the settlement was “fair and reasonable to the employee.” These factors are: (1) the complexity, expense and likely duration of the litigation; (2) the reaction of the class to the settlement; (3) stage of the proceedings and the amount of discovery completed; (4) risks of establishing liability; (5) risks of establishing damages; (6) risks of maintaining the class action through the trial; (7) ability of the defendants to withstand a greater judgment; (8) the range of reasonableness of the settlement fund in light of the best possible recovery; and (9) the range of reasonableness of the settlement fund to a possible recovery in light of all the attendant risks of litigation. The Court concluded those factors militated strongly in favor of the settlement.

The Court then has to examine whether the settlement frustrates the implementation of the FLSA. The Court noted that signs that the agreement does frustrate the law include an unduly harsh or restrictive confidentiality clause and/or a Release that seeks to release claims under laws other than the FLSA. For example, a clause prohibiting FLSA plaintiffs from telling other workers of the result would frustrate the purpose of the FLSA. The Court found no such impediments and this concluded the settlement was valid.

The Takeaway

For me, the most important provisions of these precepts pertinent to court-approved settlements are the inability to insert a confidentiality provision as well as the forbidding of an overbroad release. When employers settle a putative class action, for example, with just the named plaintiff(s), the overriding goal of the employer is to then not endure a flood of other employees filing similar lawsuits, meaning it wants confidentiality. This lack of confidentiality would give the employer less reason to settle just for the one person and more reason to fight the thing through, to perhaps win (regardless of the extra legal fees it would have to spend).

Or, more importantly, to show that suing will not be a walk in the park or lead to a quick-hitting settlement…

I have been writing about wage hour issues that are implicated or raised by the continuing COVID-19 situation. Well, here’s another one. I warn that as businesses start to open up (or not), employees (and, more to the point, plaintiff-side lawyers) will be seeking to sue employers on a number of grounds, some of which rely on circumstances that might have well been beyond the control of their employers. To start with, employers must be aware that they will not receive any “benefit of the doubt” from aggrieved workers nor will these workers have any sympathy or understanding for their employers and not sue them to be “nice.”

Another basic lesson. The doctrine of force majeure is not going to excuse employers from compliance with wage-hour laws, especially wage payment laws. This doctrine, which applies when traumatic, unanticipated events (earthquake, hurricane) occur, may excuse compliance with a particular contract but it does not excuse non-compliance with the FLSA and state laws. Put differently, there is no provision in federal or state laws that authorize an employer not to pay minimum wage or proper overtime. These laws have not been changed or placed into limbo by the crisis and continue to operate at full force, although perhaps under the surface.

A hidden issue is that of employee (or, put better, employer) business expenses. If employees are working from home (as I am) they may well need supplies (e.g. copy paper, computer accoutrements, etc.) and the issue is whether the employee or employer must pay for them. In many States, such as New Jersey and California, the wage payments laws are very strict and will view such items as employer expenses, because the work that will be done using these items ultimately will inure to the benefit of the employer. Thus, forcing employees to pay for these items, or making deductions from salaries/wages for such items, will violate the law. If these deductions are being taken from a group, or class, of employees, there is an incipient class action brewing.

A corollary issue to this is the complex problem of paying employees properly for teleworking. I have already blogged about this but it bears emphasizing. When non-exempt workers respond to, or write, e-mails, after their normal work hours, those minutes/hours are converted to work time. If those minutes push the weekly work hours beyond forty, then it is overtime. Again, the specter of a class action rears its ugly head in these situations. The test is whether there was employer compulsion, explicit or, more importantly, implicit and whether the activity primarily benefits the employer, rather than the employee. In this regard, simply asserting that this activity is de minimis and therefore not compensable is a very dangerous placing of all the eggs in a shaky basket. One obvious answer, perhaps draconian, is to order non-exempt workers not to answer or write any e-mails or do any work after their shift ends.

The Takeaway

The courts and the various Departments of Labor are open, although operating at a diminished capacity. Wage hour cases and complaints are still being filed and submitted. Depending how employers respond to and proactively (or not) deal with wage-hour/compensation issues during the virus and the re-opening will have a significant impact on whether there is a new wave of wage-hour (e.g. overtime) cases coming forward. I recommend employers consult counsel to conduct complete internal audits of their compensation practices to see where they stand.

Do it soon…

For information on addressing the impact of the Coronavirus pandemic on the workplace, as well as other legal matters affecting your business, visit Fox Rothschild’s Coronavirus Resource page.

The USDOL has been pretty busy lately issuing new rules and interpretations about FLSA issues, including vague, nuanced issues like the inclusion (or not) of bonuses in the regular rate and the circumstances under which employers can utilize bonuses. The agency has again issued such a clarification allowing employers to provide bonuses (and hazard pay) to workers paid on a “fluctuating workweek” method. The agency explains that these changes will give employers new freedom to pay workers in the midst of the current COVID-19 situation.

The rule specifically allows employers to provide employees with bonuses, hazard pay and commissions in addition to their fixed weekly salaries, finding that these kinds of payments are “compatible” with the fluctuating workweek (FWW) method of computing overtime. Significantly, the rule also makes clear that these added monies must be included in the calculation of the regular rate of pay when overtime is computed. Cheryl Stanton, the DOL Administrator of the Wage Hour Division, advised that this rule gives employers needed “flexibility” as they cope with the numerous problems and issues engendered by the COVID-19 situation. Such flexibility would be entailed in the (anticipated) staggered shifts that employers may have to adopt upon re-opening their businesses, keeping in mind social distancing protocols.

The FWW method of payment provides that employees are entitled to half-time overtime, instead of “traditional” time and one-half, if they are on a fixed salary for all hours worked, so the regular rate for such a FWW employee will fluctuate from week to week, depending on the number of hours worked. Under the new rule, as the agency explained it will be “easier for employers and employees to agree to unique scheduling arrangements while allowing employees to retain access to the bonuses and premiums they would otherwise earn.” The rule also negates a 2011 Obama DOL regulation which was intended to prevent employers from not fully compensating these FWW workers by moving most of the workers’ salaries into bonus payments.

Naturally, there is opposition to the regulation. Several state Attorneys General have issued comments asserting that the new rule “runs counter to the remedial purpose of the FLSA.” They are concerned that “the proposed rule will create incentives for employers to reduce fixed weekly salaries while increasing weekly work schedules and to shift a large portion of wages into bonus and premium payments to reduce costs.” They warn that “these incentives will likely lead employers to increase their use of the FWW rule and in doing so, will fail to comply with local laws that either do not allow the FWW rule or allow it only within the narrow bounds of the precedent the department now seeks to overturn.”

The agency countered by noting that “while the overtime premium per hour decreases as hours increase, the employer must still pay an overtime premium that is designed to discourage overtime work and spread employment, and the total amount of overtime premium an employer owes continues to increase as hours increase. It further observed that “the department notes that the payment of hours-based bonuses to employees compensated under the fluctuating workweek method — which this final rule clarifies is permitted — may diminish or even eliminate the inverse relationship between hours worked and the regular rate that commenters find objectionable.”

The Takeaway

The Administrator has also stated that the rule will give clarity for employers who are “looking for new ways to better compensate their workers” but have been unsure whether they could provide bonuses to FWW workers. The rule also eliminates (to a large extent) the uncertainty faced by employers who would only know if they were right or wrong about whether bonuses could be given if they were sued in court and won. Or lost.

Clarity is a good thing and, in these difficult times, most welcome…

For information on addressing the impact of the Coronavirus pandemic on the workplace, as well as other legal matters affecting your business, visit Fox Rothschild’s Coronavirus Resource page.

I have handled many cases involving the so-called commission exemption under the Fair Labor Standards Act, Section 207(i), and I can safely say that often a big stumbling block for the defendant (i.e. employer) is to show that it is in a “retail” industry. Absent that showing, the exemption will not apply, even if the worker earns at least 50% of his weekly compensation from commission and his hourly earnings are at least time and one-half of the minimum wage. The US Department of Labor has just made it easier for employers to claim that exemption by expanding the number of employers that can qualify as “retail” businesses.

The DOL has deleted from the 207(i) regulations the partial listing of industries that had been, heretofore, classified as not having any “retail concept,” which would preclude businesses in those industries from claiming the exemption for workers. The new rule simultaneously deleted a second partial listing of businesses that are recognized as “retail.” Thus, going forward Sections 29 CFR 779.317 and 29 CFR 779.320 are “history.”

The agency states that it seeks to promote “consistent treatment” in ascertaining whether the exemption applies by applying “the same analysis to all establishments.” Importantly, now, businesses that were on the excluded list can now meet the exemption if they satisfy the criteria in the regulations which sets forth the standards as to what is/is not “retail.” The agency also seeks to “reduce confusion” in determining the retail nature of a particular business. In this regard, Cheryl Stanton, the Administrator of the USDOL Wage-Hour Division, stated that the new rule “unshackles job creators in the retail space who had previously been categorically excluded from the exemption without notice and comment.”

The list of non-retail businesses issued in 1961 and then was amended in 1970 to add more than forty more types of non-retail entities, e.g. dry cleaners, travel agencies. In the last fifty years, as noted by one commentator, Paul DeCamp, employers who pay workers by commission “have struggled with figuring out whether they’re covered by the Section 7(i) exemption.” Now, that these illustrative lists have been eliminated, a business can better review its circumstances and determine if it fits within the criteria established in 29 CFR 779 to ascertain if it is (or may be) a “retail business.”

The Takeaway

There is no doubt that this is a development that favors employers, or, put differently, makes it easier for employers to be able to comply with the law. The lists were restrictive and, automatically, foreclosed an employer whose business was on the non-retail list from paying its employees by commission and not legally paying overtime. It is also a sign the USDOL is being more flexible and molding its rules to fit the contours of a modern workplace.

Out with the old, in with the new…

For information on addressing the impact of the Coronavirus pandemic on the workplace, as well as other legal matters affecting your business, visit the Cornonavirus Resource page on the Fox Rothschild website at: https://www.foxrothschild.com/coronavirus-resources/