The TSheets Time Tracking Blog recently posted a quiz testing readers’ knowledge of the Fair Labor Standards Act (FLSA). It was a pleasure to assist in preparing the 9-question quiz, asking participants to correctly apply the FLSA to several hypothetical situations. Can you get a perfect score?
As I live and breathe!
The USDOL, the agency charged with enforcing the Fair Labor Standards Act has, evidently, not been paying its own employees proper overtime. The agency has just agreed to pay $7 million to settle claims that it did not pay proper overtime to thousands of its own employees. The matter was brought as a grievance by the American Federation of Government Employees, Local 12 (“AFGE”) and had been percolating through “the process” for almost ten years.
The Union lawyer aptly noted that “this is the agency that goes around fining all the private employers for doing the same thing that it just ended up paying $7 million to make go away.” The “collective action” grievance charged that the DOL failed to pay employees when the agency “suffered or permitted” overtime to be worked. Interestingly, during the pendency of this grievance, many workers who had been classified as exempt were re-classified to non-exempt, i.e. overtime-eligible.
It is estimated that thousands of employees will receive payments under the settlement. The theory of the grievance was that employees were performing work beyond their assigned shifts, work that the agency knew or should have known about, but nonetheless did not pay the employees for this work.
The Union sought to place the blame directly on the former Secretaries of Labor, Elaine Chao and Hilda Solis. The Union President stated that “it is deeply disappointing that both Secretary Chao and Secretary Solis were unwilling to abide by their own regulations when it came to paying their employees. It is sad that a decent and hard-working public servant like Secretary Perez has to clean up their mess.”
The Union lawyer stated that “this settlement will help ensure that the agency follows the same laws it enforces. I guess this should be taken as a cautionary tale by all employers, small or titanic.”
But, most especially, for the agency.
This is an interesting case and a (possible) double victory for the employer. A rarity. An employer-defendant, Dynamex, Inc. has filed a motion to eliminate more than 30 opt-ins from a conditionally certified collective action under the FLSA seeking back due wages for overtime violations. On that very day, the employer won the right to access some of the opt-in members’ tax records. The case is entitled Juan Saravia v. Dynamex Inc. and was filed in federal court in the Northern District of California.
The Company wanted some opt-ins eliminated because they failed to show up for their depositions and others because they withdrew their consent to participate in the suit. The Company also challenged opt-ins because they were not part of the originally proposed class definition or they did not opt-in on time or they were contracted to work outside of California or were deceased. The Company urged to the Court that “absent the requested dismissal, this court will be allowing the inclusion of eighteen (18) additional opt-ins at trial in a case where individualized determinations are a necessity and the interest and diligence of the opt-ins is at question.”
The theory of the case is that although the Company labeled the workers as independent contractors, the Company controlled the routes, schedules, customers and other details for thousands of U.S. drivers, which would show too much control, meaning that they were actually statutory employees. At this time, 155 drivers have opted in.
On that same day, as luck would have it, the Judge ordered 36 collective action members to turn over their federal tax records relevant to their claims from 2008-present when they were contractors for the Company. The class members had objected on invasion of privacy grounds and that the demand was a pretext for harassment. The court disagreed, concluding that the plaintiffs’ privacy interests did not supersede the Company’s interest in preparing and advancing a fully formed defense on the merits of the case.
The Court aptly and cogently found that “the tax records that Dynamex seeks will provide probative information indicating the structure of each plaintiff’s businesses, the nature of their income and expenses, and the extent of their gross income, which will be useful in demonstrating whether each of the opt-ins was properly classified as an ‘independent contractor’ or not.”
This is a great victory, securing the tax returns. Moreover, and more importantly perhaps, it tilts the momentum of the case in favor of the employer. Regretfully, most times, the employer is placed in the unenviable position of being reactive and always warding off the next attack by plaintiffs. Maybe the plaintiffs do not want to open up their tax returns for scrutiny. Maybe this will cause the plaintiffs to want to settle or be more reasonable in any settlement demands.
I applaud the tactic. Let it be a signal to other defendant counsel out there.
One thing about FLSA collective actions—right or wrong, win or lose, the legal fees for both sides mount up quickly and almost relentlessly. I often counsel clients to try to get out early of such a case (especially if I perceive there to be a problem, where there usually is). Well, the parties in a recently filed collective action have asked a federal judge to stay the proceedings in their case so they could pursue mediation. The case is entitled Barnett v. EQT Production Co., and was filed in federal court in Western District of Pennsylvania. This is the correct tactic for the employer.
The workers claim that they were misclassified as exempt, thereby denying them overtime. In a joint motion, the parties requested that discovery be stayed and that the action be conditionally certified so that notice could be sent to potential class members. That notice would allow workers to opt in. The conditionally certified class would be comprised of any person who performed completions work for the Company but who were treated as independent contractors; such people are not “employees” under the FLSA. (The mediation is scheduled for October 17).
The named plaintiff alleged that he and other employees on rigs routinely performed non-exempt work in excess of forty per week and were never paid overtime. To evade this obligation, the plaintiff charges that the Company classified the workers as independent contractors.
The plaintiff charges also that the Company exercised sufficient control to label the workers as “employees” and therefore subject to the FLSA. They allegedly took direction from the company as well as being managed and supervised by Company supervisors. They provided regular reports to supervisors; they wore EQT uniforms, attended EQT training/orientation and lived in company-provided housing. Those are several indicia of control, undermining the defense that the people are true independent contractors.
This could be bad for the Employer. By putting all your eggs in the basket of independent contractor status, the battle will be totally lost if the workers are not found to be independent contractors. This is because if a worker is covered by the FLSA and is non-exempt and if they work beyond forty hours, they must get paid overtime. End of story. Then, all there is to quibble about is the number of hours worked and computation issues.
I applaud the action here, especially by the employer. Get out of it early and save the escalating legal fees (on both sides, as this is a fee-shifting statute). If there is something to be fixed or ameliorated, then do it.
And move on…
A putative class of delivery truck drivers has filed a collective action FLSA lawsuit against Bimbo Bakeries, alleging a failure to pay overtime. The case is entitled Oddo et al. v. Bimbo Bakeries U.S.A. Inc. and was filed in federal court in the District of New Jersey. The plaintiffs will seek conditional certification and try to get the ability to send opt-in notices to affected employees.
The plaintiffs claim that by paying drivers a flat rate of $110 per week plus 12% commission on sales, the Company violated both federal and state law.
The Complaint alleges that the “plaintiffs assert that defendants failed to pay named plaintiffs and those similarly situated proper overtime compensation and failed to implement a system to track the number of hours worked each work week.” The Complaint contends that the drivers, titled “route sales representatives,” could not improve their commissions since they had no sales training and “the amount of sales that named plaintiffs made to a retailer along their delivery routes was mainly determined by the volume of the retailer’s sales to its customers since named plaintiffs’ last delivery.”
There have been many other FLSA lawsuits against this Company, which is a multinational bakery company based in Mexico; the Company owns several brands, including Sara Lee, Entenmann’s and Thomas’. The Company has also settled several cases with fairly large dollar payouts over the last six years. By contrast, the class here is no more than forty employees (if they all opt in).
Overtime cannot be waived nor can it be paid through compensation arrangements which, although fair or even generous, do not comply with the law. The employer here must either keep employees to forty hours or less or pay them overtime.
There are legal ways to pay overtime and yet not experience an increase in labor costs. This Company must examine any number of procedures for effecting compliance and still being efficient and profitable. They do exist!
I believe the Company can do it…
I blogged about this case a few weeks ago and opined that the employer would have an uphill fight. Maybe they heard me. The case has now been put in abeyance as the parties seek to work out a settlement. This initiative follows my thinking in many of these cases—try to get out early and as cheap as you can (especially if, as the employer, you perceive you have exposure). The case is entitled Werman et al. v. Rotonda Golf Partners LLC and was filed in federal court in the Middle District of Florida.
The proposed collective action was based on the theory that employees were forced to work off the clock and were therefore not paid proper overtime. The lawyers filed a joint motion last week asking for a stay so they could discuss settlement. The case is now in abeyance until October 7.
The joint motion noted that “the parties respectfully submit that it would be most efficient for the parties to spend their time and limited resources working toward a mutually agreeable settlement rather than responding to the amended complaint, filing a case management report, engaging in discovery and engaging in motion practice relating to, among other things, the overtime exemption asserted by defendants.”
The protocol agreed on will include letters being sent to the employees so they can opt in if they choose. The defendants then have to provide the payroll records to the plaintiffs’ lawyers so they can “reasonably necessary to determine whether, as plaintiffs allege but which defendants deny, compensation is owed to the opt-in.”
The suit alleges that employees were directed not to punch in when they got to work and to keep working after they punched out. The employees allege that they received two paychecks that showed only a portion of their hours worked. They also received part of their monies as “employees” and then received the rest of their pay through a 1099, i.e. as independent contractors. The workers contend that they were intentionally misclassified so the employers could avoid paying overtime.
This is a big step forward in resolving this litigation and it will dramatically cut down the litigation fees which the employer would have to spend and avoid inflating the adversary’s fee petition/demand.
It appears to me, as a management side practitioner, that this is the right strategy. The most crucial thing is to fix what was broken—treating people as W2 employees and 1099 independent contractors in the same work week(s) smacks of deception and an intent to avoid payment of overtime. Off-the-clock cases are very bothersome, especially when the evidence suggests that there was a focused, management effort to order people to work off-the-clock.
A sand trap, but there is a way out…
A group of hourly employees working for the pawnshop chain Gem Financial Services Inc. have been granted conditional certification in a Fair Labor Standards Act action; their allegation is (as usual) unpaid overtime. The federal Judge ruled that the workers had presented sufficient evidence at this early juncture to show that a common compensation policy applied to them and it was arguably illegal. The case is entitled Dalton et al. v. Gem Financial Services Inc. et al., and was filed in federal court in the Eastern District of New York.
The Judge concluded that “courts in this circuit have routinely allowed for conditional certification where plaintiffs proffer precise and detailed information outlining the alleged mistreatment suffered by other similarly situated employees as a result of defendants’ compensation policies.”
The employer has twenty-eight retail locations throughout the New York area and in excess of 130 workers. The employees allege that they were routinely shorted on overtime pay for weeks when they worked in excess of the statutory threshold of forty hours. Added to the pure wage hour claims is the allegation by one of the three original plaintiffs, Diori Johnson, an accountant, who states that she was asked to falsify time records, make improper deductions from exempt employees’ salaries and continually not pay employees the proper amount.
An HR administrator, who visited company pawn shops, always heard complaints from employees that they were not paid overtime and saw (allegedly) rounding practices that always resulted in clocked hours being rounded down. The Judge noted these employees’ experiences and observations as the basis for deciding to grant conditional certification. The Court stated that “this type of consistent involvement in the day-to-day compensation realities of other Gem employees enabled plaintiffs to directly observe defendants’ alleged wage-denial scheme.”
Interestingly, the Court also concluded that the workers did not meet the Second Circuit standard for demonstrating sufficient similarities between non-exempt workers and other employees who were allegedly misclassified as exempt from overtime to be able to conditionally certify a collective action class including both groups.
This case shows the best and the worst of results for the employer. The Court (rather easily) granted certification on the one class of workers, where the Court believed that a common policy and practice applied to all of them. Then, the Court refused to grant certification to a second requested class, where the allegation was that the workers were non-exempt. On that component, the Court believed that not enough similarity or commonality had been shown. That is the essence of a successful defense to a collective action.
On that first group, it seems an uphill climb…
The financial giant Morgan Stanley announced that it will settle four FLSA collective actions for six million dollars; the suits, filed by financial adviser trainees, alleged that they were not paid overtime properly. The case is entitled Devries v. Morgan Stanley & Co. LLC et al. and was filed in federal court in the Southern District of Florida.
The parties asked U.S. District Judge Kenneth A. Marra to grant preliminary approval of the settlement, which includes attorneys’ fees of almost four million dollars as well. The filing papers asserted that “the proposed settlement satisfies the criteria for approval of a Fair Labor Standards Act collective action settlement because it was reached after significant information exchange and contested litigation in four venues, and was the result of arm’s length settlement negotiations conducted by experienced counsel well-versed in wage and hour law.”
The settlement provides that members of two of the four collective actions will receive the equivalent of six hours of unpaid overtime for each week they worked, while the others will receive payments equivalent to those reached in a very similar case involving this company, which ended in 2014 with a $4.2 million settlement. The case involved allegedly unpaid training and study time, i.e. off-the-clock work. These types of cases have reached epidemic proportion and are showing no signs of losing vitality. The plaintiffs alleged that although the bank had a written policy to pay overtime, there existed, in reality, a de facto “off-the-clock” policy in violation of the FLSA.
The Company defended this case aggressively, as noted by the assertions in the filings that the “plaintiffs believe that this amount represents a very fair settlement given the amount of unpaid overtime that was claimed, the uncertainty of success on collective certification, and defendants’ defenses on the merits, including its contention that that it provided paid time during the workweek for studying during training weeks and that it took steps to prevent its employees from studying off the clock.”
The Company put forth a statement that it agreed to settle these lawsuits in order to avoid the cost and distraction of prolonged litigation. That was the correct thing to do but the more important thing is to now make sure that proactive steps are taken to ensure that if study/reading time is mandated (or implicitly mandated) that the employees are compensated for that time.
Whenever a class action is defended, the main defense is, always, too much individual scrutiny is needed to allow a class to be formed. This is exactly what a group of defendants has just now urged a California federal court to find and thus decertify a conditional class of workers claiming they were denied overtime pay in violation of the Fair Labor Standards Act. The case is entitled Sandoval et al. v. Ali et al.. and was filed in federal court in the Northern District of California.
The workers clam that they were not paid for non-repair-related tasks and they also claim that they were not properly compensated for downtime; the employers claim that each of these claims has to be assessed individually because they are not similar enough to belong to a single class or to opt in to the conditionally certified FLSA class. Indeed, the defendants noted that the court itself already compared the theories of recovery to “shifting sands.”
The defendants brief aptly noted that “each variation has been tied to unique, individualized or specifically anecdotal scenarios based on cases that are dissimilar to the facts of this case, but there has not been any evidence of any class-wide policy, procedure or practice at use [in] all shops let alone a single shop that would warrant the FLSA conditionally certified class to continue as a class action.”
The defendants argued that the standard for conditional certification is much lower because that kind of certification is granted “not on the merits,” but rather because, in that limited and narrow setting, naked allegations can carry the day. However, the defendants cogently argued that “by contrast, [for] the decertification of FLSA collective actions or final certification of FLSA collective actions, the burden on plaintiffs is substantially greater and requires a demonstration of substantial similarity between the plaintiffs and opt-ins.” The defendants conclude by bluntly noting that “plaintiffs cannot meet this burden.”
Anything that can be espoused that will tend to show individuality or that individual scrutiny is needed should be thrown up as a defense. For example, in this case, there were several FLSA class members and a number of opt-in workers that allegedly had claims beyond the statute of limitations period, so their circumstances would also be different. The employer here has cogently asserted that decertification is mandated because proving liability under these circumstances will necessarily default into making numerous individual inquiries over time worked.
Music to my ears. Hope it works.
Now that the new DOL exemption rules have issued, commentators have had time to reflect on what these changes may mean for business. A few days ago, a House of Representatives committee heard that the new rules will hinder the ability of businesses to offer flexibility and advancement to newly overtime-eligible workers. To the contrary, the head of the DOL championed the new rules as a great victory for middle-class employees.
Under Chairman Rep. John Kline, R-Minn., the House Education and the Workforce Committee was looking at the potential effects of the rules. A management side attorney told the committee that the changes could lead to a host of potentially negative impacts from converting employees to non-exempt status. He opined that there would be reduced flexibility for workers, limited career advancement opportunities and weakened employee morale. He warned that there would also be more (as if we need it) FLSA litigation.
The lawyer noted that “in the short period of time since the revisions were published, it has become clear that it will be incredibly difficult for many employers to implement. Complicating the analysis is the fact that the Department’s revisions would require employers to revisit these issues every three years, deciding whether continued classification of an employee as exempt is worth the new threshold salary increase.”
Another witness, a VP for HR from a major university, warned committee members that the overtime changes will be “difficult to absorb without significantly impacting university services.” She also stated that the University would be forced to reclassify employees whose jobs were well-suited for exempt status.
The committee Chairman himself warned that the rule “will do more harm than good” and will adversely impact, to a greater extent, lower-income workers and younger Americans. The Chairman stated that “this rule will disrupt the lives of countless individuals and do nothing to remove the regulatory landmines that are harmful to workers and employers. He added that “workplaces are more dynamic and innovative than they have ever been, and the needs of today’s workers are much different than for those who worked when the [FLSA] was written more than 75 years ago.”
I am not sure that these doomsday predictions are entirely accurate. Businesses will lose some flexibility, but they may gain some certainty and peace of mind. For those employees whose duties are currently borderline in terms of exemption, the salary changes make it “easier” for employers to now make them non-exempt and hourly and not have to worry about lawsuits challenging their exempt status.