The DOL filed an appeal of the lower court’s granting an injunction staying the implementation of the new overtime regulations.  Now, as expected, frankly, the agency has requested that the Fifth Circuit expedite these proceedings.  The agency claims that the delay has denied giving additional pay (i.e. overtime) to millions of workers.

Dollar signs
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The Department of Labor observed that the States themselves asked for an expedited argument and decision.  The agency’s theory is that the lower court decision should be reversed because the Judge incorrectly ruled that the FLSA did not provide the agency with the authority to use “a salary-level test” to gauge which workers would be exempt from overtime.

The DOL motion stated that “this court, however, reached the opposite conclusion in Wirtz v. Mississippi Publishers Corp. There, this court emphasized that ‘[t]he statute gives the secretary broad latitude to ‘define and delimit’ the meaning of the term ‘bona fide executive … capacity’,” and rejected the argument “that the minimum salary requirement is arbitrary or capricious.”

The DOL has also contended that the newly revised salary threshold is consistent with the salary levels established over the last seven decades.  It notes that the proposed minimum salary level for exempt employees is roughly three times the minimum wage for a 40-hour work week, which is equivalent to the multiplier utilized at the law’s inception, in 1938.

The Takeaway

I assumed this request would be made.  I also believe the request will be granted as this is an issue of national importance.

That does not mean the lower court decision will be overturned or that the new Administration will not roll back (in some part) the proposed salary level.

We will see…

On November 22, 2016, Judge Mazzant of the U.S. District Court for the Eastern District of Texas issued a nationwide injunction against the Department of Labor (DOL) blocking its Final Overtime Rule, which was set to go into effect on December 1, 2016.

The injunction “preserves the status quo while the Court determines the Department [of Labor]’s authority to make the Final Rule as well as the Final Rule’s validity.” Moving forward, the Final Rule may face an uphill battle as the Court found the states challenging the Final Rule showed a “substantial likelihood of success on the merits.”

Dollar signs
Copyright: sergo / 123RF Stock Photo

This leaves many employers in a quandary.  Employers who had plans to implement those changes must decide whether to postpone, temporarily or otherwise, those initiatives, proceed with the changes or see what develops down the line.

I believe the following guidelines provide some reasoned basis for dealing with this injunction and the uncertainty that it brings with it:

  • Employers that have already implemented changes in anticipation of the new rules taking effect need to consider from a human resources standpoint the impact of reversing those actions. Taking away promised salary increases will inevitably lead to dissatisfied employees and employee relations problems. Employers need to weigh the “human” costs of that unhappiness against the cost of the salary increases.
  • Employers that have not implemented changes are better able to take a wait-and-see approach. The injunction could well be modified or even lifted.  If that happens, there is no way to know how long employers will have to comply with any revised standards.
  • Employers must still be mindful of the duties test of the “white-collar exemption,” which has not been altered. If employees are non-exempt, today, from a duties perspective, they will be non-exempt in the future, whatever the salary levels are raised or (or not raised to).
  • As always, employers must comply with state-specific requirements for overtime exemptions, which may well include salary thresholds more than $455 per week, e.g. California, New York.
  • Keep employees informed, whatever you do!

The Takeaway

In my humble opinion, I do not believe these new changes will be implemented, or, if they are, they might/will be diluted under the pro-business Administration that will be taking over in seven weeks.

To be continued…

A group of New Jersey sales associates who work in Dish Network LLC call centers urged a federal court to confirm a $1.9 million arbitration award stemming from a proposed class action, in which the workers said the satellite television provider miscalculated their overtime pay rates.  The case is entitled Frisari v. Dish Network LLC, and was filed in federal court in the District of New Jersey.

Group of satellite dishes
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The workers urge that the award, which gave the employees overtime at time and one-half, instead of the half-time overtime rates they were paid, is appropriate under long established principles.  The plaintiffs urge that “it is well established that when this court reviews an arbitration award, as long as the arbitrator’s award is not by ‘his own brand of industrial justice,’ the award is legitimate.”

The plaintiffs’ lawyer stated that the award shows that employers could not “cut corners” by paying overtime based on a half-time premium, which is a form of the FLSA “fluctuating work week” method.  He stated that “this sets precedent that companies cannot use the fluctuating work week method under the New Jersey Wage & Hour Law.”

The employees claimed that they were compelled to work off the clock and were prevented from accurately reporting these overtime hours.  They asserted that they were not paid while they performed preliminary duties before their shifts began, such as booting up computers and launching software.  The employees also claimed that they often worked through lunch, although these meal breaks were counted as unpaid periods.

The employees had filed suit and then the Company claimed that they were compelled to arbitrate their claims individually, as opposed to a class action, but the arbitrator held that there was the possibility the workers could still proceed with their claims as a class.   The Company sought to vacate that award but was unsuccessful.  In the final order he entered, the arbitrator awarded $480,000 in attorneys’ fees to the class and $1.9 million damages for the class.

The Takeaway

This case illustrates an interesting trend that is perhaps developing.  I believe (and I see it in my practice) that plaintiff lawyers are becoming less averse to litigating FLSA claims in an arbitral forum, where defendants would much prefer to be in.  On balance, I think it is better for both sides.  It is much cheaper, much faster and arbitrators are usually pretty savvy, both in deciding the case on the merits and facilitating settlements.

A win win.  Maybe…

A group of field service engineers have filed a FLSA suit against Alcon Laboratories, on the theory that the company misclassified them as exempt employees.  They seek conditional class certification, alleging that they were consistently denied overtime pay.  The case is entitled Voss v. Alcon Laboratories Inc., and was filed in federal court in the District of Minnesota.

Lab and engineers
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The allegation is that the Company wrongfully classified field service engineers as exempt until the Company changed their classification in 2016.  The plaintiffs seek conditional certification of a class of field service engineers.  The motion for certification asserts that “regardless of their specific job title, Alcon’s field service engineers performed the same primary job duties and were compensated in the same manner.  And despite the fact that they routinely worked over 40 hours per week, they were uniformly classified as exempt and denied proper overtime pay.”

Although they now receive overtime, the employees want back due wages for the period(s) of time they were misclassified.  The lead plaintiff asserts that his duties included installing, repairing, troubleshooting, servicing and maintaining ophthalmic laser equipment.  The Company defended its earlier classification decision by contending that the employees were professionally exempt or fit within the Highly Compensated Employee (HCE) exemption.

But – and it is a big but – at the conditional certification stage, there is a lower burden of proof and the plaintiffs argue that they have met the “fairly lenient” burden of evidence for conditional certification, i.e., a showing that the workers were similarly situated.  The plaintiffs argue that they share the same job duties, FLSA classification and pay structure and that they were all told, via a series of conference calls, about their new classification policy.

The Takeaway

The danger, always, when an employer re-classifies employees and begins to pay them overtime going forward is that the employees will realize that maybe they should have been paid overtime “all along” and will take some action.  In the litigious world in which we live, in the internet world in which we live, where employees can (all too) easily learn about their “rights,” an employer who re-classifies must always anticipate future challenges to its prior reclassification decisions.

One answer.  Compute what the employees are owed for that past overtime and pay them, along with getting the employees to sign releases.  That also brings with it legal issues, as one or more of the people may take that Release to an attorney or seek an attorney’s advice, but if the employer can get most of the people to “take the money and run” on that backdue overtime, the size of any ostensible class has been greatly diminished.

Whenever a FLSA suit is lodged against a unionized employer, I always look for the possibility of a preemption defense, which will, in one fell swoop, doom the entire litigation.  If the Court finds that the matter is governed by the parties’ labor contract and is better and properly left for the arbitration (or NLRB) process, then the Court does not have jurisdiction.  In a recent case, FreshPoint Inc. has tried to argue just that.  The Company has urged dismissal of a class action FLSA suit, asserting that the claims are nullified by the drivers’ collective bargaining agreement.  The case is entitled Rodriguez Jr. v. FreshPoint Inc. and was filed in federal court in the Northern District of California.

Picket line
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The FreshPoint attorney argued that the claims for failure to pay straight wages, pay overtime, provide meal periods and permit rest periods are not suited for resolution in federal court because these items were negotiated into the labor contract by FreshPoint and the Teamsters.  He also argued that the California Labor Code has an exemption from state overtime and meal break requirements for commercial drivers who have agreed to such a union contract.

The lawyer for the workers acknowledged that the meal break and overtime pay policy complied with the collective bargaining agreement under California law.  She asserted, however, that the other claims should not be dismissed and took issue with the defendant’s contention that the workers were seeking “improper reimbursements” by seeking relief with both rest break premiums and penalties and for not enumerating the breaks in the wage statements of the employees.  She claimed that “it’s not a double recovery. That’s just what they’re owed.  There are hours they were off the clock that weren’t paid for.”

The Judge seemed skeptical about the federal preemption argument.  The Judge wondered “if I were to find there was no preemption, what’s the basis of jurisdiction under the state law claim?”

The was filed in state court but the defendants removed it to federal court in September.  This is the usual course of action when federal claims are implicated, explicitly or otherwise, in a state court law suit.

The Takeaway

This is the best starting point to mount a defense.  If this is successful, the whole thing goes away.  That would be good because if these alleged violations were the products of common policies or practices, the argument for a class certification would be stronger.

I blogged about this a short time ago. More than fifty (50) business groups requested that a US District Court Judge render a fast decision in the case involving the constitutionality of the USDOL’s new overtime regulations, i.e. the doubling of the salary threshold.  The case is entitled Plano Chamber of Commerce et al. v. Perez and was filed in federal court in the Eastern District of Texas.

Courthouse pillars
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The theory is that the DOL exceeded its powers.  Also, they argue that the cost of compliance will be massive, forcing many small business owners to cut jobs or close.  The groups also want the date pushed back beyond December 1, 2016 so plaintiffs want oral arguments to be held as soon as possible and the rule vacated.  The plaintiffs argued that “this conclusion is compelled by the plain text of the statute and is further confirmed by over 70 years of administrative practice and judicial decisions left untouched by Congress.”

The suit was filed in late September, as were other similar cases by two dozen States.  These plaintiffs have this week filed a motion for preliminary injunction in their case.  The business groups have stated that they want their case adjudicated on the same timeline as the motion by the States.

The business groups have contended that the proposed changes are not merely limited to raising the salary level, but they, really, change the basis for determining whether or not employees are exempt.  The groups argue that the new DOL rule does not abide by the requirement that the duties of positions govern the exemption tests.

The motion papers, in this regard, state that “rather, they fundamentally alter the focus of the exemption analysis, shifting the test from one focused primarily on the functions identified by Congress in the FLSA to one that turns almost entirely on a salary threshold that is not a plausible proxy for those statutorily defined job functions.  And by automatically adjusting the salary threshold every three years in perpetuity, the rule ensures that this disconnect will only grow greater over time.”

The Takeaway

I am fascinated by these initiatives and I cannot wait to see how it plays out.  I think the motions are going to fail, because I think the DOL did have the regulatory power to make these changes.

I hope I’m wrong…

I read an interesting post the other day by Michael Thompson in the Wage & Hour Defense Blog, in which he discussed the discoverability of plaintiff ATM and cell phone records in a FLSA collective action case.  He discussed the case of Gonzalez v. Allied Concrete Industries, Inc., where the plaintiffs claimed they were not paid overtime in violation of the Fair Labor Standards Act and New York law.  The case was filed in federal court in the Eastern District of New York.  To help them ascertain whether the plaintiffs were working when they claimed they were, the defendants sought an order compelling discovery of their ATM and cell phone records.

Woman using her mobile phone, city skyline night light background
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The defendants asserted the records of the plaintiffs’ ATM transactions were likely to lead to the discovery of admissible evidence because they could reveal each plaintiff’s “whereabouts and activities during hours they claim to have been working.”  The defendants relied on other precedent where access to ATM records was granted.  The Court denied the motion, although it acknowledged the existing precedent.

The Court found that in the other case an evidentiary showing had been made to the effect that the plaintiff attended prolonged lunches during the workweek and withdrew cash from ATMs for that purpose.  In the instant case, however, the defendants had not shown any “evidentiary nexus between the en masse discovery sought and a good faith basis to believe that such discovery material is both relevant and proportional to the needs of the case.”

The defendants also sought the release of the plaintiffs’ cell phone records in order to determine whether the plaintiffs “engaged in personal activities such as non-work related telephone calls, extended telephone calls, [and] frequent text messaging” during times they claimed to have been working.  There was also precedent for this production but the Court ruled that the defendants had not made a showing that the plaintiffs made personal calls when they were supposed to be working.  Thus, the Court ruled that this was mere speculation and did not warrant a “wholesale intrusion into the private affairs” of the plaintiffs.

The Takeaway

I have blogged recently about employers obtaining tax records of plaintiffs in FLSA cases.  I think this possibility, i.e. obtaining, or requesting, electronic evidence of an employee’s activities through discovery, may be another good tactic.  Obviously, some evidential foundation is needed but there may be a possibility that plaintiffs do not want their ATM or cell phone records thrust into the middle of a litigation.

Therefore, they may be more inclined to settle.  Something to ponder, isn’t it?  Or to try…

  • Corporate travel spend is at great risk for non-compliance if business travelers make independent decisions about airlines, hotels and rental cars. In fact, companies that have a very loose travel policy, or no formal policy often end up with endlessly escalating travel expenses. Yet, preparing, approving and gaining travel policy support can be a daunting task, often creating more questions than answers. Learn how to build a travel policy that reflects company philosophy, avoids common mistakes under FLSA and DOL, and other best practices. Join me October 18 for my C4CM-hosted webinar “Writing & Enforcing a Corporate Travel Policy that Cuts Costs & Keeps Your Company FLSA/DOL Compliant.
  • The explosion of smartphones and tablets has eased the way for employees to have continuous remote connectivity to the workplace, presenting yet another liability threat for employers already battling an increase in overtime pay claims. An employer can be held liable for overtime pay for work it never requested from an employee upon a showing by the employee that the employer had actual or constructive knowledge of the work. Learn about the latest DOL developments impacting employees use of electronic devices after hours, how continuous connectivity of employees affect the definition of working time and compensable time, defenses to electronic overtime pay claims, and best practices to avoid such claims. Join me October 27 for my Stafford Live CLE-hosted webinar “Overtime Pay Claims for After-Hours Use of Electronic Devices: Navigating the Latest DOL and Case Law Developments.

For the last several months, I have been talking to and advising clients on strategies to deal with the advent of the new FLSA salary regulations, i.e. the $913 per week commencing December 1, 2016.  Maybe all that was for naught?  This is because more than fifty business groups and twenty-one (21) States have filed lawsuits challenging these rule changes.  The theory is that the agency unconstitutionally exceeded its authority to establish a federal minimum salary level for exempt, white collar workers.  The cases are entitled Nevada et al. v. U.S. Department of Labor et al. and Plano Chamber of Commerce et al. v. Perez, both filed in federal court in the Eastern District of Texas

Courthouse pillars
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The States contend that the large increases in required salary levels would force many state and local governments (and private businesses) to dramatically increase their employment costs.  This could compel employers to cut services or lay off employees.  The States seek a declaratory judgment to the effect that the new rules unlawfully violate the Tenth Amendment by requiring a certain mode of payment for state employees.  On that same day, many business groups (e.g. US Chamber of Commerce, National Association of Manufacturers, National Retail Federation) also filed legal actions, claiming that the reasons proffered by the USDOL for the new salary threshold are not a proper construction of the FLSA.

The states also take issue with the policy behind the rule change, saying a worker’s salary level doesn’t reflect the kind of work an employee actually performs. The states argue the DOL regulation disregards the text of the Fair Labor Standards Act by imposing a salary threshold without regard to whether an employee is actually performing bona fide executive, administrative or professional duties.

The States also assert that the rule’s automatic indexing mechanism, which kicks up the minimum salary threshold every three years would not be illustrative of the nation’s economic conditions or the potential impact on public and private resources.  The plaintiffs contend that by compelling States to spend more from state funds on exempt employee salaries or overtime, the federal government is unilaterally depleting state resources and that violates the Constitution.

The business groups also allege that losing the overtime exemption for “frontline executives, administrators and professionals” would rob businesses of being able to flexibly manage their workforces.  Ostensibly, millions of employees nationwide would have to be reclassified to non-exempt hourly workers, which would result in their hours being cut back to avoid overtime and thereby “deny them opportunities for advancement and hinder performance of their jobs — to the detriment of their employers, their customers and their own careers.”

The Takeaway

The agency has raised the minimum salary level several times, the last time in 2004, without legal challenge, or, at least, a successful legal challenge.  I think the same result will obtain this time.  In any event, every employer should be going through the process of determining, under current salary levels, if all of their exempt people are truly exempt??

Get ready for December 1!

I recently blogged about the defendants in a FLSA case being able to secure plaintiff tax returns in discovery.  Maybe that was the start of a trend.  In a New Jersey case, a federal judge has ordered all of the named plaintiffs to produce tax returns for the tax years for which they claim damages in this action.  The case is entitled Kim v. Dongbu Tour & Travel, Inc and was filed in federal court in the District of New Jersey.

17542382 - u s income tax return forms 1040,1065,1120
Copyright: lobzik / 123RF Stock Photo

Plaintiffs worked as tour guides and were classified as independent contractors, which the Court ruled they were not; the Court granted the conditional certification motion. Defendants then sought the Plaintiffs’ income tax returns, asserting that “the income earned by each Plaintiff is relevant to their retaliation claim[s] and “is evidence of Plaintiffs’ damages (or lack thereof) and their mitigation of such alleged damages.”  The employer also argued that the tax returns would provide further evidence of whether Plaintiffs were employees or independent contractors, which would impact the key issue of liability.

The Court noted that public policy “favors the nondisclosure of income tax returns,” but it looked at the relevance of the tax returns to the litigation.  If the returns were relevant, a court had to then determine whether there was a compelling need for the tax returns due to the sought after information being otherwise unavailable.”  The Court noted that it was the burden of the party objecting to producing the information to prove that that the information is otherwise available.

Applying this test, the Court here ruled that the plaintiffs’ tax returns were relevant, because if the workers received additional income by tips or commissions counts, that information bore directly on assessing whether the employees received proper wages.  The information was also relevant to the workers’ allegations relating to their claimed damages, including the existence of offsets or mitigation.

The Court also concluded that there was a compelling need for the tax returns and the information was otherwise unavailable.  The Court observed that although Plaintiffs submitted their log guide books, many were incomplete or were simply unavailable and the Court concluded that information pertaining to the amounts received at various stops was also unavailable.  The Court also refused to approximate damages because it opined that the tax returns could provide accurate information and eliminate the need for speculative, burdensome, or costly attempts to approximate.  In sum, the employees could not show that the information was otherwise available from a less invasive reliable source.

The Takeaway

This is a great tactic for defendant employers to use in these cases.  This decision provides an instructive roadmap for the arguments that must be made in order to secure plaintiff-employee tax returns.  Usually, people don’t want their tax returns to be seen by others, especially in a federal litigation, where it could conceivably become “public.”

Maybe it turns out to be a way of impelling quick, early, cheaper settlements.