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

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

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

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

The Takeaway

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

All in all, a good roadmap…

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

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

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

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

The Takeaway

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

Or pay them later, in court…

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

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

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

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

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

The Takeaway

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

The fundamental premise of being an exempt employee is that the worker is paid by a “salary” as that term is defined in the FLSA regulations. Even paying someone an exorbitant amount of money, if it is not (at least in part) a salary, means, by definition, that the person is non-exempt. The Fifth Circuit has just emphasized this tenet in a case involving an employee who earned more than $200,000 per year. This is in the energy industry, where many workers (exempt or otherwise) make great deal of money. The case is entitled Hewitt v. Helix Energy Solutions Group, Inc. and issued from the Fifth Circuit Court of Appeals.

The required duties for white collar exemptions vary, but the salary requirement cuts across all three of these exemptions (with minor carveouts for lawyers and doctors). In Hewitt, the employee was titled a Tool Pusher; he worked on an offshore oil rig where he earned over $200,000 per year. But and it is a big “but,” the employee was compensated via a day rate, rather than on a weekly or annual basis. The Court noted that daily paid employees may qualify for the exemption, but at least $684 per week (the FLSA minimum salary for exempts) of the total compensation must be paid by salary and there must exist a so-called “reasonable relationship” between that salary and the usual/expected weekly compensation.

The employer argued that since the basic day rate of $963 was paid to the worker if he performed even a minute’s worth of work, that meant he was guaranteed the compensation required for exemption and was far above it. The Court rejected this argument, specifically distinguishing between the guaranteed payment of a day rate and the weekly guarantee that inures to payment of a bona fide salary. In other words, the guarantee of the day rate was not the equivalent of a salary and because the employee earned “orders of magnitude” more than the minimum exempt salary, i.e. $684, there did not exist a reasonable relationship between the guarantee of $863 and the $4000 (or so) weekly total compensation.

There are two other Circuits, the Sixth and the Eighth Circuits (and the USDOL) who have held in this manner. These Courts will not apply the Highly Compensated Exemption (HCE) principles to these very highly compensated people, even though, as a practical matter, the employees should be considered exempt if they perform a single exempt function as the HCE demands.

The Takeaway

There is a split in the Circuits on this issue and the matter may end up before the Supreme Court. For employers, the fix, going forward, is relatively easy. Ensure that at least, on a weekly basis, $684 of the total compensation is paid as a true “salary.” This case is a shame because the employer clearly intended that the employee be exempt and the level of compensation is one that is not, obviously, paid to non-exempt workers.

Expensive mistake…

The thorny issue of what constitutes “working time” is always causing headaches for employers and the pandemic period has increased these concerns greatly, with demands made for compensation for testing time, vaccination time. A class action has been recently filed, seeking compensation for workers in a meatpacking plant who want pay for time spent being looked at for COVID-19 symptoms prior to the start of their shift and during lunch time. The case is entitled Villa v. Cargill Meat Solutions Corp. and was filed in the Court of Common Pleas in Philadelphia, Pennsylvania.

The workers allege that the requirement of mandatory testing for COVID-19 required workers to report before their shifts or miss their lunches, but they were not paid for that time. The Complaint asserts that the “plaintiff and production workers were not paid for significant amounts of time between the start of the required COVID screening process, and when they were clocked in for pay purposes. Cargill failed to pay for all hours the production workers worked, beginning with the time production workers were required to be on Cargill’s premises to undergo the COVID screening process until they were clocked in, in violation of Pennsylvania law.”

As has been written about many times, the nature of the meatpacking business required the plant and employees to keep working as the pandemic raged. In addition, the workers were in very close proximity to each other on the lines. No social distancing at all. Thus, after an outbreak, the Company began mandating that all workers be checked for symptoms prior to evert shift and again at the end of the lunch breaks. There were often long lines for these checks, the Complaint alleges.

The Complaint alleges, significantly, that “production workers could be subject to discipline if they did not arrive ready at the workstation in time for their production work to start. Accordingly, the addition of the COVID screening process required production workers to arrive at work earlier than they had before the implementation of the examinations. Such time was uncompensated.” The workers had to cut short their lunch periods so they could get tested and be back on the line at the assigned time.

The suit claims that since this screening process was a required and an essential component of the employees’ job duties, the time became compensable. If the screening time pushed the worker(s) to beyond forty hours in the week, then overtime would be due. The plaintiffs also referenced a July 2021 Pennsylvania Supreme Court decision (Heimbach v. Amazon) which concluded that mandatory security screenings prior/after each shift were compensable.

The Takeaway

To me, the fact of whether there was or was not employer compulsion is the key issue here. As I have written several times–when it comes to working time issues, especially preliminary or postliminary activity, any element of employer compulsion or requirement will convert that time into working time. Also, there is the cogent argument that the activity is for the benefit of the employer, to ensure smooth production and operation, rather than for the employees, although there is naturally some benefit to the workers knowing they do not have COVID.

Good case to settle quickly…

Another administrative exemption case, this time in the trucking industry, tests the contours of that vague, nuanced exemption and to what occupations it applies. In this case, a group of Logistics Coordinators contend they are not within the exemption because their primary duty was making sales and they were not paid on a salaried basis, which is the linchpin for any employer claim of a “white-collar exemption.” The case is entitled Rood v. R&R Express Inc., and was filed in federal court in the Western District of Pennsylvania.

These employees claim they were part of the production process, the stream of production. They claim that their jobs only involved locating entities that needed trucking services and then seeking to sell those services to them. In their summary judgment papers, they claim that the “Third Circuit has long recognized that inside salespeople, like the logistics coordinators, are not covered by the administrative exemption because they do ‘productive work,’ not ‘administrative’ work. Based on the Logistics Coordinators’ primary duties, the Court should rule, as a matter of law, that the logistics coordinators were not covered by the administrative exemption.” Significantly, the exemption argument is the Company’s only defense to the overtime claim.

The Company claimed the workers were administrative, and thus exempt from overtime. The plaintiffs respond by relying on a major Third Circuit decision, Martin v. Cooper Electric Supply Co. that established the premise that inside sales workers were in the stream of production and not administrative workers as defined by Part 541 of the FLSA regulations. They point to the fact that the employees “make cold calls and [send] emails to customers in pursuit of sales and generally engaged in efforts to make sales for R&R Express day in and day out.” They also claim that the workers did not exercise discretion and independent judgment (as required by the exemption) as they were allegedly required to choose from a list of Company sanctioned carriers for other services.

The Company has relied on another Third Circuit case, Smith v. Johnson & Johnson, which found a senior professional sales representative was within the administrative exemption, as his work was concentrating on promoting sales, as opposed to making sales. Most significantly, the plaintiffs charge that the Company did not pay these workers on a salary, which is a fundamental condition precedent for an employer claiming the exemption. The workers state that the Company first paid these employees hourly, then on a flat amount per week (which is a salary) and then by commission only. They allege that neither hourly par nor commission payment satisfy the regulatory requirement.

    The Takeaway

The plaintiff brief could have been one sentence simply alleging that no salaries were paid. That, by itself, dooms the exemption argument. On the merits, this case is a cautionary tale. The administrative exemption is more appropriate for “back office” functions and not for any job that contributes to the daily production activity of an employer. Where these cases often go south for employers on the merits is the lack of discretion and independent judgment exercised by the employees. Employers need to give their administrative employees latitude in arriving at decisions and not place them in work roles where their responses are dictated by guidelines and mandated Company protocols.

if borderline, make them non-exempt…

In a chicken-and-egg type of case, an unusual case, the Third Circuit has emphatically held a Judge taking over a class action case must deal with the threshold issue of whether a class should be certified prior to a trial commencing on the collective claims of the class. The Court sternly warned that if this is not done, it would be contrary to Court rules and Supreme Court precedent. The case is entitled In re: Citizens Bank NA, and issued from the U.S. Court of Appeals for the Third Circuit.

The case involves a group of Loan Officers suing under the Fair Labor Standards Act, alleging they were compelled to perform off the clock work. They sought certification under both the FLSA and state law, pursuant to Rule 23 of the Federal Rules of Civil Procedure. The trial court Judge wanted to proceed directly to a trial on these allegations, prior to determining whether a Rule 23 class was appropriate. The Court stated that this approach was a “win-win for the employees and disadvantages Citizens at every turn.”

This kind of skewed approach, held the Third Circuit, would essentially guarantee class certification if the plaintiffs won at trial. If, on the other hand, the Company prevailed at trial, the individual class members would be able to then file their own individual lawsuits. The Court decried this order of events, because even if the lawsuit encompassed only Rule 23 claims, and no class action, the trial first, certification second, concept should be met with the “utmost skepticism.” The Court aptly stated that “such a procedural sequence would be ignoring Rule 23’s text and history, flouting Supreme Court precedent, and departing from the case law of seven circuits while undercutting four others.”

Now, the stay that had been issued is dissolved and a new Judge will be assigned. The Third Circuit made plain that it expects the new Judge will consider “our ensuing discussion of the interests at stake here and the factors that motivated our grant of a stay in the first place.” There are, as the Court noted, “weighty concerns” regarding a trial prior to the certification process and the “complexities unique” to these hybrid cases.

The lawsuit concerns an alleged scheme by the bank to avoid paying overtime to Loan Officers. They allege that even though the employees could claim overtime, the employer had an unofficial policy that capped how much overtime could be approved, leading to the performance of this off-the-clock work.

    The Takeaway

I don’t understand how this could have even been contemplated. It put the plaintiffs in a no-lose situation and placed the employer at a great legal and tactical disadvantage. Luckily, the Third Circuit, a highly respected federal appellate court, put an end to this nonsense.

What will plaintiffs think of next…

I always tell clients they must comply with both federal and state law, whatever State they are situate in, that complying with one is not a defense to not complying with the other, tougher, law. A sterling example of this concept has just arisen in a travel time case. Travel time issues are often murky, anyway, and the vagaries of a particular State may prove difficult to be aware of, before “something” happens. A recent Washington State case highlights this point. The case is entitled Port of Tacoma v. Sacks, and issued from the Washington Court of Appeals,

As a rule, under the FLSA employers do not have to compensate employees for time travelling outside of their normal workday. If an employee’s workday is 9AM-5PM, and that employee catches a plane at 9PM, then that travel time (and the time going to the airport) is not compensable. If the plane leaves at 3PM, then the travel is compensable, including the commute to the airport. An important note—these principles apply only to non-exempt workers, as exempt workers do not receive overtime (or compensation beyond their salary) regardless of whether the travel would be compensable.

The Washington decision expands the protection of the wage hour laws to that travel time beyond the end of the shift. The Court ruled that four non-exempt workers employees who traveled to China to monitor the erecting of four cranes were due compensation for all their travel time to and back from China. The Court held this, notwithstanding that the employer and the Union representing the workers negotiated an eight hour per day compensation arrangement.

By doing so, the Court held true to the State Department of Labor & Industry position that went beyond federal law and held that all travel time which was related to the job was compensable. The State DOL position is that the timing of the travel is irrelevant, i.e. whether it happens during the normal shift or after and it also include the travel time to the airport.

The Takeaway

This case shows that employers must be cognizant of the wage hour laws, not just cases, but the positions and perspective of the particular Department of Labor, in every jurisdiction they do business in. This Washington case is a bit of an anomaly as it significantly expands the compensability of travel time and may also apply to other preliminary and postliminary activities. It is not enough to defend by showing compliance with the FLSA.

Don’t be unpleasantly surprised…

When I, as a management-side practitioner, defend a FLSA class action, the contingency I fear is that a court might find that the violation was “willful,” thereby extending the two-year statute of limitations to a third year. A recent case shows just how hard a defendant will fight against that third year. In this case, the employer could not convince the Court that a third year was unwarranted. The case is entitled Bah v. Enterprise Holdings Inc. et al. and was filed in federal court in the District of Massachusetts.

The Company had relied upon a Second Circuit decision that concluded that in order to find willfulness, the plaintiff(s) had to plausibly support their claim. The Massachusetts (which is in the First Circuit) Judge disagreed, observing that the Second Circuit holding merely creates a circuit split on this issue” and “does not persuade the court that its Nov. 13, 2020, decision was based on a manifest error of law.”

The Company had sought reconsideration of the Judge’s November 2020 ruling, It argued that the employee commencing the action “never asserted a single factual allegation supporting his claim that defendants’ alleged misclassification somehow constituted willful neglect or disregard for compliance with the FLSA.” The reconsideration motion sought only to upset the willfulness ruling. The remainder of that November decision focused on whether the joint employer issue had been properly and adequately pled. Now, the case will proceed to a decision on conditional certification.

The Takeaway

To plaintiff side lawyers, everything is willful. They never saw a case that wasn’t willful. That simply is not case. Most FLSA violations, especially misclassification issues, I have found, are more attributable to good-faith employer errors when they make nuanced and fact-sensitive decisions on who is/is not exempt. Employers need to carefully document, in internal memos, for example, what bases and facts supported their decisions to classify employees. Naturally, those decisions need to be factual and legally well founded, but such a protocol goes a long way to defeating willfulness claims.

They shouldn’t get that third year…

The issue of misclassification of workers as exempt when they might not be has been around for a very long time. Another class of such workers has been certified in the health care industry. The federal Judge has granted final certification to two classes of workers claiming they are entitled to overtime. The classes will allow more than seventy (70) client service managers to pursue their overtime claims.

The Company had argued that the guidelines it issued to assist the client service managers were not enforced uniformly, as the workers performed many different tasks, which depended on the location that worked at, as well as the supervisory policies and approach of the particular local manager they worked for. The Judge found that “while the existence of uniform policies is not dispositive, it is strong evidence to support plaintiffs’ burden of showing how they are similarly situated.”

The employees allege that they spend the vast amount of their time, between 70-95%, performing non-exempt duties. They allege that “from corporate documents and corporate admissions, to seven plaintiffs’ depositions — shows that those CSMs who joined this lawsuit spend most of their time performing substantially similar, non-exempt tasks.”

The Company countered by asserting that there existed too much individuality amongst the alleged class to allow for such certification. The Company contended that each of the plaintiffs worked at different places in a network spanning thirteen (13) States, with each facility having its unique staffing levels and different supervisors giving varying guidance about the work and timekeeping. The Company stressed that there were sufficient differences in the duties and workloads of the plaintiffs to undermine the contention that they were all “similarly situated.” Although there was a policy book, the Company asserted that was no evidence that all of the Client Service Managers were treated the same. The case is entitled Ivanovs et al. v. Bayada Home Health Care Inc., and was filed in federal court in the District of New Jersey.

The Takeaway

I think the Court got it wrong. As I have written about many times, the best attack against certification is the contention that too much individual scrutiny is needed and/or that the employees are too dissimilar to warrant inclusion in an overall class working under a single, overall policy. The employer here seemed to make that case very cogently with a good deal of factual foundation.

It’s a shame…