I have often blogged about the very enforcement-oriented stance of the Murphy Administration and the New Jersey Department of Labor (“NJDOL”). Well, I have now even more evidence. On July 8, 2021, Governor Murphy signed three bills into law that broaden the agency’s power to enforce State wage, benefit, and tax laws.

The first law, A-5890/S3920, which takes effect immediately, gives the Commissioner, at his “sole discretion,” the power to bypass the Office of Administrative Law and bring an enforcement action for any violation of State wage, benefit and tax law in Superior Court. Upon filing a complaint, the Commissioner may seek an injunction against the employer. Additionally, any entity that fails, for any reason, to furnish information required will be guilty of a disorderly persons offense and may be fined $1,000. Each day that the entity fails to furnish records will constitute a separate offense. Previously, an employer or its agent would only be subject to penalties for a willful failure to furnish information required by to the commissioner.

A-5890 also provides for much more punitive stop-work orders. If the Commissioner determines that an employer is in violation of any State wage, benefit or tax law, the Commissioner has the power to issue a stop-work order against the employer requiring cessation of all business operations of the employer at any number of worksites, or across all of the employer’s worksites and places of businesses. A final stop-work order remains in effect until the Commissioner is satisfied that the employer is complying with State laws and has paid any penalties.

The second statute (A-5891/S3921) creates the “Office of Strategic Enforcement and Compliance” in the NJDOL. The Office of Strategic Enforcement and Compliance will oversee and coordinate enforcement of State wage, benefit, and tax laws across the divisions of the NJDOL and between the agency and other State agencies. The new law requires the NJDOL to determine whether an individual has any outstanding liabilities to the agency (i.e., unpaid contributions to unemployment compensation fund or state disability benefits) as a precondition to awarding the individual direct business assistance from the department, or for the NJDOL to provide a report to another state agency or entity that the business is in good standing. If the department determines that the person has any outstanding liabilities, the application for business assistance will be denied.

The third law (A-5892/S3922) takes effect on January 1, 2022 and makes misclassifying employees for the purpose of evading insurance premium payments a violation of the New Jersey Insurance Fraud Prevention Act (“NJIFPA”). For example, if an employer purposely or knowingly “makes a false or misleading statement, representation, or submission, including failing to properly classify employees in violation of state wage, benefit and tax laws, for the purpose of evading the full payment of insurance benefits or premiums.” A person or business found in violation of the NJIFPA will be liable in a civil action for a penalty of $5,000 for the first offense, $10,000 for the second offense, and $15,000 for each subsequent offense.

The Takeaway

    The new laws expand the DOLWD’s power to enforce State wage, tax and benefit laws and increase employer exposure and liability for any potential violations. Given that most of the new laws go into effect immediately, employers that use independent contractors must re-examine their worker classifications to determine if these independent contractors meet the stringent New Jersey A-B-C test that is the standard for making such determinations. With these escalating penalties and the threat if a crippling stop-work order, employers may want to shy away from using or classifying workers as independent contractors.

    Better safe than sorry…

In July 2019, the New Jersey Legislature amended and expanded the State’s wage-hour laws to give the enforcing agency the power to stop an errant contractor, especially those doing prevailing wage work, from actually doing any more work until the violations are remedied. In its first exercise of this awesome authority, the agency has directed Cunha Construction to stop doing work, across the State, based on its record of persistent and continuing wage-hour transgressions.

The DOL stated that this is the first time such a broad stop-work order has been issued; previously, such orders were issued on a project-by-project basis. The Order stays effective until the employer has evidenced compliance and paid all back-due wages to employees as well as paying the penalties assessed.

The Legislature gave the agency the power to order any employer to stop doing work when the DOL discovers major wage violations, including a failure to pay benefits or other violations. As this contractor was not a registered public works employer, the NJDOL did not possess the “tools” to bring the employer into compliance and, so this weapon was a valuable one for the agency to use. As Governor Murphy stated, “this stop-work order from the Department of Labor & Workforce Development is the first of its kind under a law signed by Gov. (Phil) Murphy to strengthen our ability to enforce the state’s labor laws. The message to employers should be clear: We are committed to using all of the tools at our disposal to protect New Jersey’s workers.”

The agency conducted field visits at two project and interviewed workers. The investigation revealed that the employer was paying off the books and by cash and also, most significantly, did not have workers’ compensation insurance. The employer was found also not to have paid overtime, did not keep proper records, paid late, and sought to impede the investigation.

The Takeaway

This is a powerful tool for the Department of Labor. In theory, the purpose is to ensure that workers are better protected from employers to seek to take advantage of them and gyp them from their hard-earned wages, especially in the construction industry where I see this power will be exercised more frequently.

Time will tell…

I have blogged many times about cases where relatively small amounts of compensation, bonus type compensation, are not included when an employer calculates the regular rate for overtime and a class action ensues. Now, this is happening with COVID-related bonuses and extra monies. A recent example is a case where a group of workers have charged that COVID compensation increases were not added into their regular rates. The case is entitled Sanchez v. Gold Standard Enterprises Inc., and was filed in federal court in the Northern District of Illinois.

The plaintiff alleges that the company, known as Binny’s Beverage Depot, promised to pay workers extra money to stay and work during COVID, but then did not include those monies when the company computed overtime. The company did not do so and thus, according to the Complaint, the employer “substantially underpaid its workforce when they worked overtime while risking their lives.”

The allegation is that the employer wanted employees to work through the dark days of the pandemic, so it promised to increase worker compensation. The employer instituted a policy under which it paid hourly workers 1.5 times their hourly rates for all hours they worked between March 15-July 4, 2020 and an extra $2 per hour for hours worked between July 5, 2020-January 2, 2021. The Company also granted bonuses for salaried (i.e. exempt) supervisors who worked through the crisis. The Complaint notes that “this compensation was well-deserved: these workers were literally risking their lives by potentially contracting Covid-19.”

The company called the extra $2/hour “temp bonus pay.” The named plaintiff claims that, regardless of the name, the monies should have been included in regular rate computations. The named plaintiff also claims that US Department of Labor has issued guidance during the pandemic that specifies that these kinds of payments must be included in regular rate calculations. He seeks a class of similarly situated workers who were not allegedly properly paid.

The Takeaway

It is a basic rule that any monies (i.e. bonus, incentive pay) that are promised to employees if they “do something,” like meeting certain production goals, or having perfect attendance for a quarter, or working through a pandemic, are includible in the regular rate under the FLSA regulations. It does not matter what the money is called, e.g. temp bonus pay. This is the kind of thing that can easily trip up an employer. On a weekly basis, on a per employee basis, these amounts are usually very small. When, however, you take a class of employees and now the sums start to aggregate and can be doubled (i.e. liquidated damages), the stakes become much higher.

Much higher…

A big part of defending any wage hour case and settling such a case is the issue of attorneys’ fees for the plaintiff’s lawyer. Plaintiff attorneys are always having grandiose notions of what they are entitled to and these issues often become the deal breaking issue of the litigation. Well, maybe us defense lawyers are (finally) getting some relief from the courts. A federal appellate court has just shot down a request for an absurd amount of legal fees based on a very small recovery for the plaintiffs. The lawyers sought $120,000 in attorney fees following what the Court dubbed a “limited success” for the clients, i.e. a wage recovery of less than $7,000. The case is entitled Weigang Wang et al. v. Chapei LLC and issued from the Third Circuit Court of Appeals.

The appellate court affirmed the lower court’s ruling that the plaintiff lawyers could not shift the burden of who pays their fees to the defendant employer. As the panel aptly observed, “fee-shifting statutes can be abused by attorneys who over-litigate a case once they have confidence that their client will receive an award — no matter how small. Here, where the result was very limited success for the clients, and where the deficiencies identified by the district court compromised a meaningful review of the claimed fees under the lodestar method, it was not an abuse of discretion to deny fees altogether.”

The plaintiffs had sued for overtime and sought almost $200,000 in damages. There was a bench trial after which the court awarded them approximately $7000 for their claims. The lower court declined, however, to award any attorney fees. The Third Circuit agreed with the lower court, ruling that the court was “fully within its discretion” to deny the request for an attorney fee award that would have equaled about eighteen times more than what their clients received.

The Court also found several glaring mistakes in the fee petition. It held that “the declaration that accompanied the fee petition referred more to the plaintiff in [a] prior default judgment case than to the actual plaintiffs in this case. Moreover, one of the attorneys had misstated his $350 hourly rate as $3550 Most troubling was that one of the attorneys failed to provide a detailed bill for his time.”

The Takeaway.

As the defense lawyer so eloquently put it, “the Third Circuit’s ruling is a wakeup call to the plaintiff’s bar. There is no silver bullet for the plaintiff’s lawyers to always obtain significant attorney’s fees in wage-and-hour litigation.” I have settled cases where the plaintiff lawyers spend fifteen minutes settling the wage portion of the case and then argue five hours over their fee demands. This decision should send a message to plaintiff lawyers not to think that every time they undertake a wage hour litigation, there will be a slot machine paying off oodles of money in their fees.

Sometimes you go bust…

I have commented, as many others, that the Biden USDOL will be far more employee friendly and protective of employee rights. More proof has arrived. The President has nominated David Weil to be the head official at the Wage Hour Division where he will wield tremendous influence on how the very nuanced Fair Labor Standards Act is interpreted and enforced. Weil had the same role in the Obama administration.

Rep. Bobby Scott, D-Va., the Chair of the Committee on Education and Labor, lauded the selection, asserting that “the Biden-Harris administration’s nomination of Dr. David Weil signals that USDOLworkers can expect the [DOL] will have their backs at this critical moment in time.” Another worker advocate stated that his group, the National Employment Lawyers Association, looks forward to partnering with Mr. Weil. He opined that “robust DOL partnerships with attorneys fighting to protect workers’ rights are essential to address fissured work arrangements like subcontracting, temporary staffing and gig work, all of which disproportionately harm women and people of color.”

Weil’s reputation precedes him. While working for President Obama, he engineered the use of data to launch enforcement actions against flagrant violators. He also advocated expanding the reach of the joint employer doctrine and restricting the use of independent contractors by taking an overly inclusive view of who are “employees.”

The Biden Administration will replace the Trump-era rules that it rescinded. Moreover, Mr. Weil has some novel theories about worker classification, as he has espoused these last few years. He proposes thinking of work and workers in “concentric circles.” This means a three-tiered structure geared towards fundamental protections, such as unsafe conditions, discrimination/harassment, and nonpayment. A second tier ostensibly covers issues such as collective bargaining and regulatory benefits, e.g. workers’ compensation, UI benefits.

The Takeaway

The pro-business, common sensical and reasoned approach by Cheryl Stanton, the former Administrator, is now gone. We will see a huge shift in emphasis along the lines of misclassification and alleged interrelations between entities for purposes of liability. Further, the positions this Administrator may take on inclusions and exclusions from overtime, and perhaps commission and 7(i) issues, may make conditions favorable for thousands of newly overtime eligible employees.

But, these things can still be planned for…

There are certain industries or fields where misclassification issues are prevalent because the nature of the duties of the workers “seems” to smack of exempt work but then there is a doubt as to whether they truly meet all of the elements of the exemption(s). A recent example of this tension is the FLSA collective action filed by a number of social services workers who claim that they are non-exempt and due overtime. The case is entitled Ellenberger et al. v. JusticeWorks Youthcare Inc., and was filed in federal court in the Western District of Pennsylvania.

The employees, including classifications such as case managers, family resource specialists and ongoing case specialists, claim that their duties, such as collecting data and coordinating client care were not exempt duties and, therefore, they are owed overtime. They claim that these routine duties involved them following corporate guidelines and procedures and thus, they were not exercising discretion and independent judgment, which is an essential element of the administrative exemption.

The employer has contracts to provide social services to many entities in Pennsylvania counties. The Complaint alleges that the entity falls within the statutory definition of an “employer” as it controls the terms and conditions of employment of these employees. The Complaint alleges that the “defendant is aware or should have been aware that the FLSA required it to pay collective action members overtime.”

There has been a good deal of litigation on the exempt status of these kinds of workers. Ten years ago, the Ninth Circuit Court of Appeals held that social workers with only a BA or BS degree, as opposed to a Masters Degree, did not come within the definition of the professional exemption in the FLSA. In this regard, the website for the Company shows that some of the case management positions only call for an associate or bachelor’s degree.

The Takeaway

The kinds of duties claimed to be performed by these workers would not require the discretion and independent judgment necessary for the administrative exemption. I do believe, however, that possession of a degree in social work or a related discipline gives the employer a good chance of demonstrating that the professional exemption applies. In any event, the employer must argue that the employees fall under either one of, or a combination of, these two exemptions.

After all, whatever works…

One tactic to defeat a class action is to assert that the named plaintiff is not an appropriate or proper representative for the class. These initiatives are not often successful, but defense counsel should always be looking for them. A defendant employer is doing just that by asserting that a lead plaintiff does not share a sufficiently commonality with the rest of the class to allow the case to proceed. The cases are entitled Washington v. GEO Group Inc. and Nwauzor et al. v. GEO Group Inc. and were filed in federal court in the Western District of Washington..

The defendant filed the motion to decertify the class one day before the trial was scheduled to begin, an interesting tactic in its own right. The lead plaintiff had been diagnosed with a mental illness, but he had previously been found by the court to be competent to be the class representative. Now, the defense lawyers are asserting that the man’s condition had “deteriorated significantly” and a referral for him for inpatient treatment indicated he was possibly looking at a “possible long-term civil commitment.”

The defendants claimed that Mr. Nwauzor was not a proper class representative because “his claims are not typical of the class as a whole.” The Company argued that this person only worked in a single job, i.e. a shower cleaner in the time he was confined. Thus, the defendants assert that “his experience is too narrow — both in time and in the scope of his VWP experience. As the sole class representative, Nwauzor represents participants in only one out of more than a dozen VWP positions and only about seven percent of the class period.” Alternatively, the defendant contended that even if the class is not de-certified, it should be limited to only those workers who occupied the same position as the lead plaintiff.

The timing of the motion to de-certify is interesting, as stated above, as jury selection was supposed to start a day later. The employer had fought long and hard for a totally in-person hearing. The employer offered the example of the Derek Chauvin as proof that such an in-person trial could be accomplished safely.

The Takeaway

    This is an interesting tactic and it is one that does not often fall into the hands of a defendant employer. If the motion is successful, the class is eliminated, and the individual is left to vindicate only his own claim. The lesson is if there exists an opportunity to find a magic bullet to get rid of the entire class action, the employer should avail itself of it.

    Keep looking for that magic bullet…

There have been a host of federal cases recently focusing on whether time spent waiting in security lines is compensable. Some have gone for the plaintiffs and others for the employer, as these cases are nuanced and fact-sensitive. A recent example of this genre is a Nike case where the Company will pay $8.25 million in settlement of such a case. The case is entitled Rodriguez v. Nike Retail Services Inc. et al., and was filed in federal court in the Northern District of California.

The settlement involves more than 16,000 workers who were employed from 2010-2019. There is White canvas sneakersestablished a fund of more than $5,000,000 and the workers will automatically receive a share. Without needing to fill out claim forms. There is also more than $3,000,000 for attorney fees. Interestingly, the Company amended its policy in November 2019 to deem the waiting time compensable.

The Company had taken the position for years that the time spent waiting for these checks was “de minimis.” In 2017, the Judge agreed with this position. The concept of “de minimis” revolves around the premise that the time being urged as working time was so fleeting or brief that it is not capable of being counted. The Ninth Circuit disagreed finding, significantly, that the de minimis rule, a creature of the FLSA and its regulations, did not apply to claims made under California wage-hour law.

The parties then went to mediation, as looming before them was perhaps many more years of expensive, protracted litigation. Interestingly, the mediation did not result in a settlement but the parties engaged in further discussions following the single day session and those talks produced this agreement.

The Takeaway

    I believe the de minimis rule is an overused and risky strategy for employers. An old case concluded that even five minutes per day, almost a half-hour per week, was not de minimis. If the employer puts all of its eggs in the de minimis basket and that defense loses, then the entire case is lost. This is the type of activity that behooves employers to get out in front of and allow perhaps 5-10 minutes per day compensable time for these checks, to evidence the employer’s awareness that the activity might be working time and to lessen its potential exposure (i.e. class action).

    Spend a nickel to save a dollar…

I have always been interested in the Motor Carrier Act (MCA) exemption of the Fair Labor Standards Act, 29 USC 213(b)(1), especially in the doctrine of “practical continuity” which is one of the ways that interstate commerce is determined and have defended a number of cases where we had to rely on practical continuity for the interstate commerce prong of this tri-partite element exemption. In a quirky case involving this concept, the US Supreme Court declined to take a case involving truck drivers in Wisconsin who claimed that, as short-haul drivers, they were not involved in interstate commerce and were therefore non-exempt and due overtime. The case is entitled Burlaka et al. v. Contract Transport Services LLC, and issued originally from the Seventh Circuit Court of Appeals.

The workers were called “spotters” and they worked for one of the clients of Contract Transport Services. These employees’ duties consisted of transporting loaded/empty truck trailers for short distances at the client’s facilities. There were goods that had been transported interstate in these trucks, but the trucks themselves never travelled across state lines and, in fact, drove, at most, a few miles. The appellate federal court, however, held that these drivers could be “reasonably expected to drive intrastate routes that were part of a continuous interstate journey,” meaning they were in the stream of interstate commerce and therefore came within the Motor Carrier Act exemption.

In order for intrastate drivers to be part of interstate commerce, there must be a persistent intent that the goods they are hauling were destined for interstate shipment and the drivers argued there was no such evidence. They claimed that the Company “failed to prove the plaintiffs’ intrastate movements had any link to the subsequent interstate movement of products, so as to subject the plaintiffs to the jurisdiction of the secretary of transportation.” The Seventh Circuit, however, found that the evidence showed that 20% of the goods going through the Green Bay facility were either coming from or destined for a different state.

As Judge (now Justice) Barrett wrote, “these facts plainly demonstrate that at least some spotters drove trailers carrying finalized goods destined for out-of-state delivery. Such a service, even if purely intrastate and interrupted briefly, would nevertheless constitute ‘driving in interstate commerce’ because it would be part of the goods’ continuous interstate journey.”

The Judge also rejected the plaintiffs’ theory on the lack of interstate movement by observing that “the plaintiffs seem to imagine that a continuous journey must resemble a relay race, in which the next driver immediately picks up exactly where the other left off. But that is neither how interstate shipments work nor what the MCA requires.”

The Takeaway

    Truck drivers often earn pretty good money, a fairly high hourly wage, so an overtime action, especially by a class of these workers, can lead to astronomical damages. Management side practitioners must be aware that merely because drivers do not leave their State does not foreclose a MCA defense. I always look for the connecting links in interstate travel in these cases, looking for evidence of the “practical continuity” of the goods in question, as the interstate commerce prong is often the most difficult to establish.

    Finding that link is, simply, the difference between winning and losing…

On prevailing wage projects, employees are paid for the different trade work they do by the rate for that trade.  Sometimes, employees work in more than one classification (e.g. Carpenter and Laborer).  These lines of demarcations are tricky sometimes, especially in situations where work in one trade might follow closely on the work of another.  The danger is that if the employer does not properly account for these various trades, significant liability will follow.

There are but few general principles that can be stated.  The only “general” rule that stands out is that it remains always incumbent upon the employer who utilizes employees in more than one classification to ensure that those employees are properly paid for the various types of work performed and for the hours such work was performed.

As far as what principles govern various questions, it is clear an employer must inquire into or research the prevailing practices in the particular locale, understanding that even for the same types of work, a county in Florida may have different trade jurisdictions than one in Michigan.  The Administrative Review Board (ARB) (the adjudicative body for Davis-Bacon Act issues and suits) addressed the issue of the applicability of area prevailing practices many years ago.  The Board found that where Wage Schedules reflect union rates as prevailing, then work that may be disputed belongs exclusively to one union over another under the local area practice.  The ARB continues to adhere to this principle to determine proper assignment of disputed DBA work.  In fact, there is an almost obsessive focus on the area practice of the unions that are involved.

Although area practice predominates, the cases do suggest some lines of demarcation, especially where work in one trade “bleeds” into another or overlaps with a different trade.  For example, in one case, the evidence showed that the Employer tried to ensure that Laborers would not be using sheet metal tools, thereby performing sheet metal work, but there were times when the workers would pick up and use tools for the Sheet Metal trade; the foreman did not intervene and either order the men to stop using the tools or ensure that they were paid for the proper trade.  Interestingly, there were occasions when the workers only “sporadically” used the sheet metal tools, but the ARB refused to find any kind of de minimis standard, ruling that the correct rate (i.e. Sheet Metal) had to be paid.

Temporal proximity is also a very important factor.  Where a worker performs work in one trade in the morning, then switches after lunch to another trade, that worker is (obviously) splitting his time, unless the work is integrally related, which is unlikely.  If the “additional” work is performed very soon after the work in the first classification, then an employer who splits the classifications may have a problem, resulting in the higher rate being ordered to be paid.  In other words, if the other (e.g. lower-rated) work is related directly to the trade in chief, the time would be paid at the higher rate, as integral to the primary job.

The Takeaway

These are intensely fact specific issues that are not amenable to the setting of general rules.  However, there are steps that can be taken to enable a Company to proactively gauge when there is a need for a split classification and, of equal import, what that “other” classification should be.  The first is to put some burden on the workers themselves, by developing a self-reporting system for the men themselves to report their hours and, in their belief, the trade and have them certify that time and the trade. It is also possible to seek USDOL guidance on jurisdictional questions, as they exist or arise.

Remember, the DOL is watching…